What Is Asset Protection and Do I Need It?

Fran
Jessica Nguyen
December 15, 2020

You don’t have to be a millionaire to be sued like one. ‘Asset insurance’ is not a single all-encompassing insurance plan; the idea is to buy additional insurance to add on top of existing policies in order to sufficiently cover the value of your assets.

As a general rule, you should purchase additional insurance plans if the total value of your current or future assets is greater than the limits of your existing automobile or homeowner's liability plans. You want to have enough liability insurance to cover your assets in the case of an accident. If you are held liable and your personal insurance coverage is not enough to cover the reparation costs, your assets will be the first to be seized. For instance, you’ll want car insurance that includes liability, comprehensive/collision and even an umbrella policy to ensure sufficient limits, especially if you have assets that could be compromised. Same goes for homeowners insurance. Always look at your limits because that’s the most you will get from the primary policy.

Do I Need Asset Protections Insurance?

Asset insurance is your first line of defense in the event you need extra money to pay off a debt accrued from an accident. The unfortunate thing with insurance plans is that coverage is limited, but the amount for which someone can sue you or bill you is unlimited. Therefore, most people buy enough insurance to protect their assets. It’s important to note that accidents don’t have to result in a civil suit for you to be responsible for damages, which may result from medical bills, car repairments, physical therapy, etc.

Even if you don’t have much to lose at the moment, your future assets can also be at risk. You lose not only existing assets but also future earnings, like wages. It’s recommended that if you have a lifestyle or a future you want to protect, it’s a safe move to purchase enough insurance to cover your assets to prevent the possibility of asset seizure. Planning for asset protection isn’t only for millionaires with yachts and supercars, it’s important for anyone who wants to protect the things they’ve worked hard for.

What Are Personal Assets?

In a broad definition, ‘assets’ refers to anything that has value; assets are considered to be your wealth and they make up your net worth.

Protectable assets include, but are not limited to:

  • Retirement accounts (IRAs, 401(k)s, etc.)
  • Real Estate (primary homes, vacation homes, land, investment properties, etc.)
  • Liquid Assets (checking and savings accounts, etc.)
  • Personal Property (jewelry, motor and recreational vehicles, life insurance, etc.)

Insurances to Add on Top of Home and Auto Insurance

Guaranteed Asset Protection (GAP): Gap insurance on your car insurance policy helps when you need to cover the loan on any of your vehicles. It works in a way such that in the event of a total loss or unrecovered theft, it will cover the ‘gap’ between the cash value of your property and the balance owed on the loan. This is a very important coverage to have if you owe more than the current value of the car.

Liability Umbrella Insurance: This is structured so that in the event of a claim for which you exceed the limits of your personal insurance liability amount, the extra protection would cover the extra costs. For example, if you had a $200,000 liability limit on your automobile policy and got involved in an accident where you are 100% at fault resulting in $500,000 worth of damages, your umbrella policy would cover the additional $300,000.

Credit Life and Credit Disability Insurance: Credit life insurance covers large loans and is beneficial because it helps pay off the remainder of the loan to the lender if the borrower dies or is disabled before the loan is paid. It helps because now the lender does not have to seize any of your assets.

Life Insurance: Life insurance covers the policyholder and makes payouts to their survivors upon their death. It can’t replace a loved one, but it helps preserve what it can of your family's way of life and standard of living so that they have time to prepare for this next stage of their life. It may help pay off an existing mortgage, which may make a big difference to survivors.

Situations Where You Might Need Additional Asset Insurance

Your newly licensed teenager picks up a friend to go drive around. He/she ends up losing control of the vehicle and the friend is critically injured. If your current personal insurance is insufficient but you have an umbrella policy, your provider will be able to cover the difference in cost for medical bills, car repairs, and etc.

You invite your college friends over to your home to celebrate the end of finals. You provide food, refreshments, and alcohol. One friend drinks more than the legal limit, gets in a car, and drives home. They end up being involved in a car accident that kills one person. The victim’s family will not only sue your friend for drunk driving, but they can also sue you for providing the friend alcohol. It’s an unfortunate situation but luckily you have additional asset protection insurance to help pay off your civil suit. Normally, the form of asset protection in this scenario would be in the form of homeowners insurance and an additional umbrella policy that would cover what the primary policy doesn’t cover.

You and your neighbors are having dinner at your house out on the patio. Unbeknownst to you, your deck is rotting and your neighbor falls through it, badly injuring their leg. Now they require reconstructive surgery that costs $800,000. You definitely cannot afford to cash that amount out without it significantly impacting your life, but if you have sufficient insurance coverage, your provider can help pay it off. Normally, the form of asset protection in this scenario would be in the form of homeowners insurance and an additional umbrella policy that would cover what the primary policy doesn’t cover. Again, the form of asset protection in this scenario would be in the form of homeowners insurance and an additional umbrella policy that would cover what the primary policy doesn’t cover.

Does My Insurance Company Have My Back?

If you’re in a legal situation, having an insurance company stand behind you and provide legal services can be a strong line of defense. It’s in the insurance company’s best interest to help you in your case and provide you with the best possible support because they too do not want to end up paying the full amount for liability. When you have insurance policies that can sufficiently cover your assets, you can rest a little bit easier knowing that accidents do happen and you will be prepared if they do.

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