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. Some of your assets may not be subject to lawsuit such as lower balances in retirement accounts or your house. But given how cheap this 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 of coverage but are sued for $5 million, the insurance company may look at that and say “It’s going to cost us three hundred thousand dollars to put up a defense, and even then, we may lose, owing another $1 million. Maybe we’ll just settle and pay the $1 million, saving the cost to defend.”
Well, that’s not good for you because you’re still on the hook for $4 million, and you now must go out to hire an attorney and defend yourself. Better that the insurance company provides the defense as that is a major part of their business.
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.