I am a worrier by design which means I try to protect what I need to protect through liberal use of insurance – life insurance for life, health insurance for health and auto insurance for my car.
For my car? I don’t buy auto insurance to protect the value of my car because at some point in your life, the value of your car becomes an inconsequential fraction of all the other assets you own.
In fact, I raise my deductible to the maximum allowed ($2,000 in my case) to pay out of pocket any damage to my car under that amount. That should reduce the collision and comprehensive coverage you pay by several hundred dollars each year.
And once the fair market value of my vehicle drops to say below $10,000, I remove collision and comprehensive coverage entirely. You take your chances because you can afford to. That should save another several hundred dollars each year.
What I do not scrimp on is liability coverage because that is what helps protect my assets. Because think about it – what is the biggest risk to your assets for someone who is regular rich? You look down on your phone for a split-second and you rear-end into another car, causing major injury to the other party or worse.
So, I buy maximum liability coverage on my auto policy to protect my assets against these unforeseen events. Not that I should be looking down on my phone anyway.
This below is the liability coverage I have on my auto policy that protects others but indirectly protects me…
Bodily Injury $300,000/$500,000 : Pays $300,000 per individual or $500,000 per accident if I am responsible for causing someone injury or death in an accident. It also pays for my legal defense.
Property Damage $100,000 : Pays in that amount if I am responsible for damage to another person’s property. That could be paying for any damage my car does to the other party’s car or home or anything that is deemed valuable.
The liability coverage below pays out to me and my passengers…
Uninsured & Underinsured Motorist $300,000/$500,000 : Pays for injuries caused to me and my fellow passengers by an uninsured, underinsured or hit-and-run motorist. It also pays for damage to my vehicle.
Out of these three, the bodily injury damage is what I deem most important. Because in a major accident and assuming it is your fault, this would be your first line of defense.
But we all know $500,000 per accident is not sufficient coverage in case you happen to hit a car full of lawyers. So how do I protect my assets beyond that?
Through umbrella insurance. If you own say a million dollars in umbrella insurance and if the accident damage totals to a million dollars, the first $500,000 will be paid by your auto liability coverage and the remaining will be paid by the umbrella insurance policy you own.
Umbrella insurance is designed to add extra liability coverage over and above say what your auto or homeowners’ insurance covers. It provides gap insurance when a claim exceeds the limits built into these policies.
Insurance companies will require you to own maximum liability coverage before they let you add an umbrella policy on top and hence the $300,000/$500,000 bodily injury liability you see above on my auto policy.
And because of that, umbrella policies are fairly cheap to own, like $500 a year for a million dollars in coverage. And it gets cheaper from there for each million you add.
I would gauge the amount of assets you are trying to protect and buy the umbrella coverage accordingly. I’d say $2 million in coverage is plenty for 99% of the regular rich.
Thank you for your time.
Cover image credit – Matheus Bertelli, Pexels