NEWS AND RESOURCES

Financial Planning for October 2003

Gotcha Covered!
This month, weíve discussed the tax implications of personal injury awards and a businessís need good attorney. Much of what we said regarding a business also applies at the personal level. While we hope that the only thing your attorney will ever do for you is prepare your will and help with infrequent employment and other contracts, the fact is we all need legal advice from time-to-time and we hope you keep that in mind.

By the way, we donít intend on further extolling the virtues of the legal profession in this article. Instead, we want to talk a little about liability insurance, and weíll start by looking at a few real life examples.

First, letís talk about the grandparents whose grandchild spent the day with them. Seems the poor tike rolled off Grandmaís bed and everyone was afraid heíd broken his neck, so they rushed him to the hospital where he was put through a battery of tests. By Godís grace, he wasnít permanently harmed and everyone was greatly relieved. Even the insurance company was relieved; imagine the bill if the childís neck has been broken.

A few weeks later, the parents of the baby received a request from the health insurance company asking about the circumstances of the accident, including the grandparentís liability insurance coverage. You see, this was an accident and the health insurance company didnít think they should pay for someone elseís negligence.

We donít know the final outcome of the insurance dispute, and we donít need to know. The point is, today more and more health insurance companies are seeking to limit their liability by making a claim against a homeowner or other potentially liable party.

This story was nowhere near as devastating as the guy whose kid got into an accident. Because the other person in the accident received serious injuries, lawsuits were filed. The father really didnít think there was much to worry about since he carried a liability limit of $1 million, until the multimillion verdict put him into bankruptcy.

Itís a sad fact of life that numerous lawsuits are filed in the United States each year for what would seem to be simple accidents with nobody really at fault. When someone really is at fault, awards are many times exorbitant in relation to the claimed negligence. Even if the defendant is innocent, litigation costs are enough to destroy a blossoming financial future. Thatís why all of your major insurance policies better insure more than just your property.

What are your primary ďpersonalĒ insurance policies, excluding health and life? You probably have an auto policy that covers damage to your car, less applicable deductible, and you probably also have a homeownerís policy. What is the coverage like on these policies? Is the property insurance portion sufficient to replace your property if damaged? If you said ďyesĒ, give yourself a gold star. How much liability insurance is included in these policies? Do you have coverage for medical costs for those injured in an accident you caused or if your living room lamp falls on someoneís head?

Primary Personal Insurance Policies

Depending on your personal lifestyle, you should have at least two and maybe more personal insurance policies. Assuming you rent your home, but have no automobile, you should at least have renterís insurance and personal liability insurance policies. Renterís insurance would cover the contents of your home, but we are more interested in lawsuits in this article. This is where the personal liability policy comes into play. A personal liability policy provides you with protection up to its stated limits against losses incurred as a result of injury to someone else while on your premises.

If you own a home and or automobile, chances are you are covered to some extent for general liability already under both of those policies. If you have boat owners or recreational vehicle insurance, you are also likely to be covered for liability to some extent. Many times, in the thick of buying a home or other property, people tend to worry less about the amount of liability coverage and more about property replacement issues. We suggest you revisit your liability coverage under these policies and, after consultation with your insurance agent and CPA, adjust them as needed. For example, some states require a minimum of $10,000 liability insurance to retain your carís registration. This amount wonít begin to pay what you may potentially owe if you total someoneís car, especially if they happen to be in it when you do the damage. For a little extra premium, you should be able to add substantial liability insurance.

So what happens if you review your policies and add as much coverage as the insurers will allow? Donít worry; the insurers have a nice little policy called a personal umbrella liability policy to keep you from staying awake at night. These policies pick up where the other liability policies end and give you additional coverage for catastrophic events. These policies are a must for anyone, especially a professional, who has a potentially high income. Letís face it; if youíre dirt poor, no attorney is going to go after you because the chance of gain is nil. If you are a professional pulling down $250,000 a year, youíre fair game since you probably have assets the attorney can get to.

Conclusion

Without knowing your personal situation, nobody can tell you how much liability insurance you should carry. Thatís why itís wise to have an annual review of your coverage with both your CPA and insurance professional for their opinion on your current coverage and any suggested additional coverage. If you do, you really have nothing to lose; if you donít, you may wind up losing everything. If you donít have a CPA, give us a call. Weíre here to help you sleep better at night.

Have a wonderful October and keep our troops in your prayers!

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