How Much Insurance Coverage do you Really Need?
One of the worst conversations I have in my personal injury practice is when my client is liable for an accident but does not have enough insurance coverage to pay for the damages. The two stories go like this:
“I was involved in a major car accident and I truly was at fault. I only had the California minimum limit of $15,000 and now the other side is asking for more money. My insurance company is not helping me much and told me that the other side is making a demand for more. What should I do?”
“My trucking company was involved in a fatal accident and the other person died. I don’t think my million-dollar policy limit is going to cover the other side’s wrongful death claim against me. Will the other side go after my personal assets?”
Holding assets under a corporation, LLC, or family trust usually will be a major factor in answering these questions but since that is another layer of legal issues, we will save that topic for another time. Nevertheless, the easiest way to avoid the above scenarios is to have sufficient insurance coverage!
A few years ago I represented a family whose mother was killed in a head on collision driving home from work. Unfortunately, the policy limit we had available to us was the California minimum of $15,000. Luckily for the at-fault party, my clients were not interested in going after a “judgment proof” individual who did not have or likely to have any type of assets. Despite hearing stories like this many folks still try to pinch pennies and buy minimal policies and hope for the best. They figure that no one is going to come after them beyond the policy limit. However, if you are at fault, most plaintiff’s lawyers like myself have an ethical duty to track down assets you have now and the ones you may accumulate in the future.
So how do you know what’s sufficient? Obviously, determining how much coverage is right for you is a personal decision. Much of the decision depends on the value of the current assets you have to protect. However, there are also other factors to take into consideration. What will the value of your future assets be? Are you involved in frequent driving activities that put you at greater risk? Do you have teenagers that are under your policy? Do you have nagging kids that distract you while you drive? Whatever the factors may be, the consensus among insurance brokers is that coverage on personal liability insurance should roughly equal a policyholder’s net worth.
Most of the time if you have substantial assets it is also recommended to supplement an existing million-dollar policy with an umbrella liability policy. We can try to be careful on the road and teach our employees to do the same, but no one can completely eliminate the risk of major accidents. No matter how many precautions you take, a major accident can change the dynamics of your business forever. Even if you have a sizeable policy limit be proactive in strategically protecting your assets, just in case.