Get Liability Protection on Your Entire Net Worth

Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: Get Liability Protection on Your Entire Net Worth.

Liability protection covers you in case of lawsuit. We live in a lawsuit-happy country. Anyone can sue anyone for anything. It is up to the defendant to put forward the case that they did nothing wrong.

There are obvious reasons for lawsuits such as personal injury or breach of contract but there are many reasons people get sued.

When you get sued, there is a discovery phase in which the person bringing the lawsuit learns all about who you are and what you have. Once they know what you have, guess how much they try to sue you for?

Yep, all of it.

Are You Protected from Unwanted Lawsuits?

The best way to protect yourself is to have liability protection either through your house or an umbrella policy that covers your total net worth. Coverage options and pricing can vary by state, so check with your insurance agent about current availability. Some of your assets, like qualified retirement accounts or your primary residence, may have limited protection under federal or state law, but given how affordable umbrella coverage is, I think it’s an easy decision to have more rather than less.

Depending on your circumstances, you can probably get liability protection of up to $5 million for just a couple thousand dollars a year.

Think of the Alternative

If you have just $1 million in liability coverage and face a lawsuit seeking $5 million, your insurance may not be enough to cover a large judgment. Depending on your policy and the circumstances, you could be personally responsible for damages exceeding your coverage limits.

That's why adequate liability coverage matters. In addition to helping protect your assets, liability insurance generally provides legal defense for covered claims, subject to the terms of your policy.

While I don’t wish or expect any of you to be sued, it could happen, and protection is so cheap it’s just silly not to have it.

Here’s this week’s Best Financial Life tip of the week: Get Liability Protection on Your Entire Net Worth.

*This blog was originally published in October 2021 and has been updated to reflect current insurance coverage considerations and planning guidance. Podcast and video content may reference prior information.