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Protect your assets with personal liability insurance
Money ManagementMonthly financial advice |
Standard homeowners, renters and auto insurance policies protect policyholders against certain types of personal liability. However, in today's litigious society, this basic coverage is often not enough to protect your assets from a devastating lawsuit that may result should you, a member of your household or even a pet accidentally injure someone or damage someone's property.
That is why the Maryland Association of CPAs recommends that you have personal liability insurance.
How it works
Personal liability insurance is sometimes referred to as an umbrella policy because it sits on top of other coverage you have, providing added protection. Basically, it increases your protection beyond the basic levels provided under your homeowners and auto insurance policies.
An umbrella liability policy also covers libel and slander, which are not covered by standard policies, and pays legal costs for a covered loss, including lawyer's fees and associated court costs.
Why it pays
No matter how careful you are, one day you could find yourself faced with a major lawsuit. Without personal liability coverage, any liability beyond the coverage limits on your homeowners or auto insurance comes out of your assets and could even put future earnings at risk.
That said, certain family circumstances and lifestyles point to a greater need for expanded liability coverage. Do you entertain often and serve alcohol to guests? Do you live in an affluent area where you could be an easy target for a big settlement? Do you own a home-based business and have employees or clients coming to your home regularly? Are there teen-agers in your family who drive? If you've answered "yes" to these questions, you may want to reassess your coverage needs.
Coverage and costs
Standard homeowners and auto policies usually provide $100,000 to $300,000 worth of basic coverage. Typically, insurance companies offer umbrella policies with coverage amounts ranging from $1 million to $10 million.
There is no exact science for determining how much liability coverage you should have. The more risk factors in your lifestyle and the higher your assets and earnings, the more you have at risk and the greater the need for additional protection.
For the protection you get, liability coverage is not that expensive. The cost depends on a number of matters such as the amount of coverage, the company issuing the policy and your own personal risk. Generally, premiums range from $200 to $300 a year for $1 million worth of coverage.
Finding liability coverage
Shop carefully. These policies can vary considerably from one insurance company to another. Because an umbrella policy is designed to supplement, and not to replace, standard coverage, it's likely that you will need to have your homeowners and auto insurance with the company writing the policy.
Insurance companies also require that you maintain certain minimum levels of liability coverage on your primary policies before you can qualify for an umbrella policy.
Read the fine print
Before accepting a policy, be sure to read it carefully. Personal liability policies won't protect you in business endeavors. You'll need a business liability policy for that.
Consult with a CPA
Personal liability insurance can be a critical component of your overall insurance plan. A CPA can review your financial circumstances and help you calculate the level of protection you need.
Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.
Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.
For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.
The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.