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Insurance: Not what its cracked up to be

Posted by attorney Joseph Barnes

Ever go to your lawyer, accountant or insurance agent and say "I have a lot of stuff. What should I do to protect it?" What is their typical Response? "BUY MORE INSURANCE." I say wrong, wrong, wrong, wrong, wrong! Why do you get that advice? They just don't know any better. You need adequate insurance to be sure! Failure to properly insure yourself, and any legal entities we create for you, can go to the issue of undercapitalization, piercing the corporate veil, fraudulent conveyance, or just make the judge mad at you. None of which you want. Typically a $300,000 policy is plenty, $100,000 may be enough. Umbrella policies can be cheap and boost coverage to $1 million or more very cost effectively. You choose but don't get too much or rely on insurance for your corporate or family's financial safety. Have too much insurance? You can here's an example. I spoke with a man about asset protection. He didn't need it he said; He had $1.5 million in insurance. WOW, he really bought into the "good hands theory" big time.

What happens if he gets sued? Most cases would be covered by much less insurance, $300K is plenty so, first off , he's overpaying a lot for coverage that's not needed. But what if that rare case comes along where liability could be substantial: a traumatic brain injury, Paraplegic, Quadriplegic or death case? Do you think $1.5 Million will be enough? No way! In fact, the $1.5 Million may only whet the lawyer's appetite, and pay the claimant's lawyer to go after everything else you have, even things you thought to set aside like the revocable trust fund for Little Johnny's college. Big policies may not only not save you, they may encourage suits! It could be worse: Will the insurance you paid so dearly for even be there??? Insurance companies s increasingly look for any loopholes in the policy to deny Any payment on a claim. The "wash their hands of you" Insurance company will make even more money for their shareholders, not to mention bonuses for their employees, if they pay nothing and leave you on your own.

That can't happen? Oh yea? Most policies won't cover intentional acts. Remember the socialite who in a drunken tiff drove her Mercedes into a line of people waiting to enter a Hamptons Long Island night spot. No insurance for her. Lawyers, even in more conventional auto cases, may cite laws allowing for double or triple damages if the accident involved certain violations of traffic rules. Sure, your Insurance pays the $100,000 in damages, but pay the punitive damages? You are probably on your own. Good bye house, good bye college fund, good bye lifestyle and the years of work to accumulate it all; all gone in a courtroom. There are more Exclusions in everybody's insurance policy every year. It is amazing, just read through your's today. The REAL Answer: Buy reasonable insurance to be sure, but then get the best possible assurance, a proper Asset Protection Plan.

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