An insurance policy consists of several different variables. A key variable that many people neglect, is the amount of liability they carry on their policy. They assume insurance is absolute, and if they have it “they’re covered”. However, placing coverage is only half the battle.
With changes to the economy and inflation, and new precedents being set daily in legal awards, insureds should consider increasing their limits proportionally to protect their assets.
In regards to home insurance policies, there are generally three limit options for liability ($100k, $300k, and $500k). The difference in premium between an insured who carries $100k and an insured who carries five times more coverage at $500k, is generally a negligible amount (sometimes as little as a few dollars per year). This would make a large difference in defending and settling a potential claim, or lawsuit. We all know that attorney and medical fees can add up quickly.
Auto insurance is slightly different, as the insured’s on the policy generally pay rates heavily weighted by their driving history. For an insured that carries no infractions, increasing the liability coverage could make a negligible change to their premium. A change well worth the increased protection of higher limits, for a small amount in exchange. For those with several infractions, the cost to increase liability could be marginal. It still may be worth the cost, especially if the insured has assets to protect.
The last thing anybody wants is to cause an accident, and not have enough coverage to indemnify the damaged party. This leaves their personal assets exposed, and the damaged party could go after them.
For those that already have the liability maxed out on an auto policy or their home insurance policy, the next step would be to consider an umbrella. The umbrella sits above the underlying policy, and extends the liability in increments of $1,000,000.
High limits of coverage never ensure that you are fully protected from a claim, but they certainly minimize the risk.
It was once said that insurance is the oldest form of legalized gambling. Who wants to take a long shot approach to protecting personal assets?!