The website Investopedia.com as of March 2016 describes asset protection as, “The concept of and strategies for guarding one's wealth.” Simply put, asset protection is a way to plan ahead to protect what you have from creditor claims — should they arise.
How can insurance help protect my assets?
While you may not be a brain surgeon who is regularly exposed to liability claims, don't think that you're excluded from everyday risks that can endanger what you've worked so hard for. Thankfully, there are many different types of insurance and some can be an effective tool for protecting your personal assets.
Your greatest asset is your income. Therefore, it makes sense to protect it, right? The fact is, when you die, your paychecks stop. Life insurance helps ensure that your loved ones will have enough money to pay the rent/mortgage, keep up with the car payments, and pay for everyday living expenses such as gas, groceries, and utilities after you're gone.
Homeowners insurance isn't just about protecting what is probably your single largest investment against fire and flood, but also about protecting you against a potential lawsuit. If someone is hurt on your property and decides to sue you, any liability coverage on your policy could defend you against lawsuits that fall under the terms of your policy, and satisfy any court-ordered judgments up to the amount specified in your contract.
Don't settle for the minimum legal liability coverage on your auto insurance policy. If you're involved in an accident that results in a lawsuit, you'll be glad that you decided to pay a higher premium for the extra coverage. How much coverage should you buy? A possible guideline could be to have coverage that is equal to your total assets.
Umbrella liability insurance
If a lawsuit is brought against you and your homeowners, auto, or other type of liability coverage isn't enough to cover the total expense, an umbrella policy can pick up where your coverage leaves off. For example, if you have a $1 million dollar auto liability policy and are served with a $2 million dollar judgment, your umbrella policy should pay the additional $1 million. Without it, plaintiffs could seize your assets and garnish your wages to pay for the damages.
Long-term care insurance
There are certain things that your healthcare policy won't cover — especially if you were to suffer a long-term illness or disability. Long-term care insurance pays for certain coverages that you could be left paying for out of pocket. Without it, you may have to cover these expenses by liquidating your retirement savings or even selling your home or other assets.
Asset protection is a critical part of a sound financial plan. If you're not sure if you have the right coverage, or if you think you may not have enough, make an appointment with a qualified insurance agent, company representative, or financial advisor. If you'd like to learn more, visit the Protective Learning Center.