Posted : 01/11/2011
You may worry that having too much liability insurance could make you a target for lawsuits if attorneys see your extensive coverage and sue to win large judgments for clients.
However, insurance professionals say most such concerns are unfounded.
While it is unwise to discuss your level of coverage openly, it's rare to be sued simply because you have a large insurance policy, says David Snyder, vice president and associate general counsel for the American Insurance Association.
Typically it is your personal worth – not your level of insurance protection – that is most likely to make you the target of a liability claim.
"If you have someone with a six-figure income, they are going to be a greater target than someone who is not making as much," says Ron Assise, president of Horton Personal Insurance in Orland Park, Ill.
It is easy for attorneys to discover how much wealth and insurance coverage you have once a suit is filed against you, Assise says. However, your insurance coverage should have no bearing on court judgments.
"Juries are instructed that the amount of coverage should have no impact on the amount of the settlement," he says.
Skimping on liability coverage because you fear a lawsuit can lead to other problems.
Liability insurance does more than pay for judgments against you, Snyder says. It also may provide money for your legal defense.
Lawsuits can be very expensive. Even if a case has no merit or is based on fraudulent claims, it still can wind up costing you tens of thousands of dollars.
It can be difficult to place a dollar figure on the amount of liability insurance you should carry, Assise says.
"The more assets, the more income you have, the more you have to lose," he says.
It's important to have adequate limits on your auto insurance and home insurance policies, he says. To get an extra layer of protection, many consumers use "umbrella" policies. Umbrella insurance is liability coverage that protects assets and future income beyond the standard limitations of primary policies.
Like life insurance and disability insurance, umbrella coverage protects you and dependents against unforeseen circumstances. Umbrella policies usually are sold in increments of $1 million.
When a primary insurance policy hits its limit, the personal umbrella insurance policy takes effect. Premiums typically are between $200 and $300 each year for a $1 million level of coverage.
How much insurance should you buy in total?
"If we had a crystal ball and saw how much you would be sued for, we would say [purchase] that amount," Assise says. "We have to go with what someone is comfortable with, what they can sleep at night with, based on how much they have and how much they earn."
If you fear being sued, there are practical steps you can take to reduce your risk of ending up in court.
For starters, begin managing your risk by reducing the potential for accidents on your property, Snyder says. Swimming pools and trampolines should be kept behind locked gates so no one can use them without your consent.
If you own a dog, make sure it is under your control at all times. Assise says many consumers underestimate the risk of owning a dog.
"Your dog can injure someone dramatically," he says. "That is why insurance companies are interested in what breed you have and if there has been any aggression."
When driving, remember not to speed or engage in other behaviors (such as chatting on your cell phone or drinking and driving) that can lead to accidents.
When deciding how much personal liability insurance you need, consider how much wealth would be at risk if you were sued. Weigh the value of your home, your possessions and all of your financial assets.
Just don't let the fear of being sued prevent you from purchasing the levels of liability insurance you need.
"A lawsuit can wreck years upon years of planning," Snyder says. "It is almost like an unexpected illness or injury. Exposure without liability insurance protection is something you can prevent."
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