Liability coverage – how much do you need?

Well, I don’t know you so I don’t know.  But I can tell you that it should be unique to your situation and only after a discussion with your agent (and most definitely with your wealth manager).  I just don’t ever understand buying off-the-shelf insurance, so be sure it’s a customized approach.

I also believe that most people (experts included) talk too much of the odds/chances that something really bad will happen when choosing a limit of liability coverage.  Do the odds of having a house fire affect the amount insurance on your home?  No.  So why make it a factor in choosing a liability limit?

The chance that something bad will happen is the insurance company’s worry.  It’s partly how they calculate the premium they’ll charge.  So most people can put aside things like odds/chances* and instead focus on something more urgent in the decision – how bad would the consequence be if you did suffer a bad liability loss?

Should you insure your entire net worth?  What about future earning potential?  What would you do if your insurance limit didn’t match the value of the loss?   I think these are more pertinent and constructive questions.

*In another post I’ll mention why some families will actually want to include a consideration of unique exposures to loss, so this isn’t a hard & fast rule.

Published by