Personal liability insurance, also known as general personal insurance, is another product we use to keep our assets intact. Since we live in a litigious society, we believe it is a good strategy to have an insurance policy that can withstand a financial error caused by a lawsuit.

What is personal liability insurance?

Your auto and homeowners insurance policies have additional liability protection built into their contracts. If you are found negligent in a situation where someone was injured, your liability protection will pay for things like personal medical bills, rehabilitation, lost wages, etc.

However, coverage amounts are relatively low and can run out quickly depending on the severity of the other party’s injuries.

The protection of an umbrella personal liability insurance policy will kick in once the liability protection of your other policies is no longer sufficient. Gives you and your goods additional protection.

How about an example of where this policy is important?

Let’s say Bill insults Anne in a car accident. Due to the severity of Anne’s injuries, she is now disabled and unable to return to work. Her medical bills are $50,000.

Good and bad news. Good news: Bill’s auto insurance policy has liability coverage of $50,000. Bad news: Do you think Anne and her lawyer are only going for $50,000?

Not likely. Remember…

He can no longer work or support his family. You can no longer finance your retirement. You have ongoing medical bills that you will need to pay due to your disability. Along with financial difficulties comes emotional distress.

So if you consider your lost wages over 20 years, medical bills, retirement, and personal therapy, you’re looking at the possibility of millions of dollars. If Bill doesn’t have personal liability insurance, then his assets are exposed.

So what does he do exposed to mean? They could go after your house, cars, boats, bank accounts, 401k, etc. Any asset held in your name is at risk.

But you don’t even have to be “physically” involved at the scene of the injury to be at risk. If someone is injured in your home and you are responsible for the damage, then your assets are at risk if you don’t have enough coverage.

This article is not meant to scare you. It is not intended to invoke fear. We encourage you to take preventive measures. We want to inspire you to take action to protect your wealth. Like putting on a seat belt in a car, an umbrella policy is an extra layer of protection.

My wife and I have an umbrella policy that provides $5 million in excess, on top of the coverage provided by our home and auto policies. We only pay $531 a year for the policy. As you can see, the premiums are relatively low.

Therefore, consider the benefits of these policies. Use an umbrella policy to cover your assets. Remember… sometimes when it rains, it pours.