If you are like most people, you have worked hard for years to acquire enough assets to live comfortably, especially at the end of your life. If you have a family, those assets are there for their protection and comfort as well. It’s painful to realize that everything you have worked so hard for could all be lost to due to a lawsuit.
There are a lot of reasons you could be sued—because someone got hurt at your house, because you had collision, because of something that happened in your small business. If you volunteer in the community, if you travel—all these things could unintentionally open you up liability if you get into a bad situation with someone who either honestly gets injured or who is just vindictive enough to sue you anyway. The liability portion of your homeowner, car and business insurance policies are there to protect you in that kind of instance. In addition, umbrella insurance policies give you extra protection, and pay when your regular insurance runs out.
In order to calculate how much insurance coverage you need, total up the amount of all your assets and double it. Be aware, if you run a small business, that even though the lawsuit may be against the business, you as the owner are personally financially responsible. Liability insurance covers both legal expenses (which can run very high even when you win) and financial judgments. You have probably read of some of the outrageous judgments that have been handed down by judges or meted out by juries. You could lose your house, your savings and even have your pay docked for years to come to come.
Look into local laws, and read your policies carefully. In some cases, insurance will not pay for punitive damages and nearly always will not pay for deliberate acts or willful negligence. The operative word is accident. Liability insurance, whatever the kind, is designed to cover accidents only.
If the additional coverage seems like more than you can afford, consider raising your deductible. It will still be much cheaper in the end than losing everything you have.
