Regardless of how you’ve accumulated your wealth (through earnings, inheritance, or a windfall), your wealth is meaningful to you and deserves protection. There are a myriad of risks that exist with the potential to negatively impact your wealth in a significant way. Some are more common than others. Common loss events include personal liability exposure and ownership damages.
Fortunately, there are three cheap and easy ways to protect your wealth in these high risk areas and avoid a preventable loss, so that you can benefit from your assets through lifetime enjoyment.
Umbrella Liability Insurance
All homeowner and car insurance policies embed personal liability limits, but these limits are typically capped at $500,000. As a rule of thumb, we recommend that everyone hold liability limits that are at least equal to their net worth (including home, investments, and all other assets). Hence, if your net worth exceeds $500,000, you need additional coverage beyond that offered under traditional home and auto insurance.
This additional coverage is available through ‘excess liability insurance’ or ‘umbrella liability insurance’. Umbrella liability insurance is so called because it effectively places a protective liability umbrella over your home(s) and your car(s) in the event of a personal liability law suit. Umbrella liability insurance is sold in increments of $1 million, and typically costs between $250 and $400 per million dollars of coverage. It’s one of the cheapest and easiest ways to protect your assets from loss.
TIPS:
- Make sure all of your real estate properties, automobiles, boats, airplanes, and any other applicable assets are covered by your umbrella liability policy. Separate policies might be required if ownership varies and/or for rental properties.
- Find out if your dog is covered, as some breeds are not.
- Evaluate other liability risks that are not covered by umbrella liability coverage. These may include:
- Professional liability insurance.
- Professional errors and omissions insurance.
- Directors and officers liability insurance.
- Frequently review your coverage limits, relative to your assets.
- Increase your umbrella liability coverage before your kids begin driving.
Tenants By The Entirety
If you’re married and hold joint accounts or joint property together, you may benefit from exploring ownership titling as tenants by the entirety (TBE). This ownership structure is very similar to traditional joint ownership, with rights of survivorship, but it embeds additional asset protection.
In most instances, assets held as tenants by the entirety are protected from liability, except in the event that both owners are held jointly liable. So, for example, if one spouse is involved in a car accident, both spouses aren’t at fault and your TBE assets would typically be safe. However, your tenancy by the entirety assets could still remain at risk if you’re both delinquent e.g., in remediating risks at your home like loose carpeting, a faulty staircase, or other risks that subsequently cause injury.
TIPS:
- To ensure that this structure is appropriate for you and your financial circumstances, speak with your financial advisor and/or attorney before transferring asset ownership to tenants by the entirety.
- Understand that some liability risks will remain, such as tax liens and other risks, varying by state.
Know If Your Insurance Types And Limits Are Adequate
It might sound like such a basic suggestion that you shrug it off, but it’s important to regularly review the adequacy of your insurance limits. We frequently find that long-standing policies are woefully inadequate, relative to current asset values.
TIPS:
- Update your coverage limits to account for inflation and rising home values over the years.
- Determine if your coverage limits reflect home upgrades, additions, and improvements.
- Evaluate all risks, such as flood, wind, and earthquake insurance.
- Ensure you’ve added and insured valuable possessions such as jewelry, art, wine, etc.
SageVest Wealth Management is dedicated to helping you grow and preserve your money. This includes evaluating the totality of your wealth composition, including assessment of relevant risk factors. As a fee-only fiduciary advisor, we receive no commissions or incentives, meaning that any insurance or other financial recommendations we make are unbiased and always have your best interests at heart. Please contact us to discuss these and other ways to protect your financial future.
