Insurance - How much is enough?
As a former insurance agent, a former insurance defense attorney and a
former defender of insurance companies in bad faith lawsuits, I have
seen just about everything. I defended a physician who was near
retirement and had substantial assets. The physician had bodily injury
liability limits of $100,000 per person, $300,000 per accident. The
Plaintiff in that case asked the jury to award over $100,000 for
medical bills plus a significant amount for pain and suffering. Had the
Plaintiff prevailed, the good doctor would have been covered for only a
fraction of the total judgment and her personal assets would have been
at risk.
I have also seen many young people, mostly in their mid to late
twenties with no real assets to speak of with bodily injury liability
limits of $100,000 per person, $300,000 per accident. If you ask them
why they bought so much insurance they will almost always tell you that
the amount was suggested by their insurance agent.
So, what is the significance of liabilities limits and how does it
relate to assets? First, to answer that question, we have to answer
another question, why do we buy insurance? For some, auto insurance is
compulsory. Without a state law requiring insurance, they probably
would not bother. For most, however, insurance is a way to protect
personal assets. Case in point, you are driving your car down the
street and a drunk pedestrian steps out in front of your car. The
pedestrian is badly injured and retains a lawyer the next day. You are
served with the lawsuit several days after that. What do you do? If you
have insurance, you give the Complaint to your insurance company. If
not, you hire a lawyer to defend you. The retainer will be about
$5,000.00, with the understanding that you will need to send money
monthly to cover ongoing litigation costs and fees. How much does it
cost to defend such a lawsuit? The answer, of course, will be a range
as each case is different, however, it is not uncommon to see attorneys
charge over $100,000.00 to defend such a case through trial. That kind
of bill alone would wipe out the financial resources of over 90% of
Americans. That does not take into consideration any judgment that may
be rendered against you if you happen to lose.
So, again, how does that relate to assets? A good Plaintiff’s attorney
will consider all sources of potential recovery. If you have $100,000
in insurance coverage as well as $200,000 in assets that are free and
clear, there is a potential recovery of $300,000. If the case is worth
more than $300,000, the attorney will not accept the $100,000 of
insurance money to settle the case because he has incentive to go after
the assets of $200,000 to help compensate the injured client. If, on
the other hand, you have $15,000 in insurance and $200 in personal
assets, the attorney will take the $15,000 in exchange for a full
release because it is not worth trying to get to the other $200 in
assets. So, the trick is to buy enough insurance to give any
Plaintiff’s lawyer reason to take it without trying to attach your
personal assets. In the first example, with $200,000 in assets, you
should have at least $200,000 in insurance, but probably more. If you
start shopping for higher levels of insurance, you will likely find
that there is only a small difference in premium between $200,000 and
$300,00, and not a great difference for as much as $1,000,000. Why not
spend a little extra and not worry about whether or not you have enough?
If you are concerned about how much insurance you have, you need to
have a detailed and open discussion with your insurance agent to make
sure you are adequately covered.
What about trying to
protect substantial assets?
It would cost a fortune to buy multiple millions of dollars worth of
insurance when there is only a small chance of ever having a claim that
large. This is quite true, and like most things in life, insurance
coverage is a matter of comfort. How much do you need to feel
comfortable versus how much do you feel comfortable paying for.
Fortunately, for those with significant assets, there are other ways to
protect your assets. You should seek the advice of a lawyer to best
advise you in that regard.