What is a reasonable amount of financial liability insurance to buy?

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Asked February 26, 2014

1 Answer

A majority portion of property and business insurance policies is allotted for liability claims. Your car has property damage and bodily injury coverage, both of which are variations on standard financial liability. Your home or renters insurance includes similar liability coverage. The problem faced by many people when they file a claim is that the default amount of financial liability is calculated as a relatively small amount and is not sufficient to cover major claims.

Car insurance is a good example of this. Most states require you to carry a minimum amount of bodily injury and property damage liability, but a single serious accident could easily max out those limits, leaving you with thousands of dollars in our of pocket expenses. The same is true of home insurance, where a tree falling on your neighbor's home causes more damages and injuries than the limits of the policy allow for.

Insurance experts advise you to purchase enough liability coverage to protect your total assets. That includes your monetary worth, and the value of all the property you own, including your cars, home, tools, and any other property you own. If this amount exceeds the limits of your policy, and it usually does, you can add more liability coverage or look into an umbrella policy.

For a small amount, you increase the limits on your home insurance. In most cases, the increase is minuscule, amounting to less than $50 per year. The problem with increasing the limits on one policy is that it leaves you financially liable on your other policies. For example, increasing the liability on your auto insurance would not be much benefit to you if you were sued over a homeowners claim incident.

There is a special type of liability insurance policy, called an umbrella policy, which provides a large sum of general financial liability coverage. This type of policy is sold separately, but has the benefit of working alongside all of your existing liability policies. The way it works is that your dedicated policy pays out to the liability limits of the policy, and then the umbrella pays out the remainder, up to the limits of the umbrella policy, which are typically high. Umbrella policies do not pay out until you exhaust the dedicated policy limits, but you are allowed to file liability claims across different types of insurance up to the limit of the umbrella policy.

Answered February 26, 2014 by Anonymous

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