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Preparing for the Worst

MoneyWise

Christian talk radio with Rob West

October 17, 2022

Are you prepared for a worst case scenario with the assets you’ve worked hard to build up? Or could you lose them with a single mishap? Today we’ll tell you about an inexpensive way to protect yourself. Proverbs 27: 12: The prudent sees danger and hides himself, but the simple go on and suffer for it. We always tell you that having insurance in general is prudent. But today we want to talk about the prudence of having a particular type of insurance that many homeowners fail to take advantage of. It’s coverage that protects your assets from catastrophic lawsuits, and it’s most commonly referred to as an umbrella policy. UMBRELLA POLICIES As the name implies, an umbrella policy gives you extra liability coverage for you and your family, beyond what you have with your homeowner’s and auto insurance policies. Does everyone need it? Maybe not, but more people than you might expect. If you’ve been working hard to build up assets in your retirement fund and the equity in your home, it’s entirely possible that you need an umbrella policy, especially when you consider that a civil judgment against you could even include future earnings. Now, you might think you’re adequately covered by homeowners and auto insurance and that your home is protected from lawsuits by state law. That’s usually the case, but not always. For example, New Jersey and Pennsylvania have no homestead protection. You might also think that your employer sponsored retirement plan, like a 401, has immunity from lawsuits and creditors. That’s true under the Employee Retirement Income Security Act (ERISA). But non-ERISA plans, like traditional or Roth IRAs, don’t have the same level of protection. So that’s another reason to consider an umbrella policy. HOW DO UMBRELLA POLICIES WORK? How exactly does an umbrella policy work? Here’s an example: You’re driving home one day and something distracts you from looking at the road. You didn’t notice that traffic is stopped at a red light ahead, and when you look back up, it’s too late to stop. You rear end the car in front of you. That causes a chain reaction with two or three cars running into those ahead of them. The next thing you know, several drivers are complaining of whiplash. You’re not worried because you have $500, 000 coverage with your auto insurance policy. The problem is, between costly repair bills and medical costs, your liability quickly goes beyond that $500, 000. And worse, now one of the drivers ahead of you decides to sue you for emotional trauma caused by the accident. You’re on the hook for everything that exceeds the limit in your auto insurance policy which could be sizable. Given how common lawsuits are in this country it would not be prudent to think this can’t happen to you. But with an umbrella policy coverage kicks in and pays off everything above your auto insurance limit not just for repairs and medical costs but also any judgments plus attorney and court fees usually up to $1 million. For example, in the area of bodily injury, most umbrella policies would protect you in the case of the auto accident I described, but also if your dog harms someone or a guest falls in your home or a neighborhood kid is injured while playing in your yard. And of course, an umbrella policy would cover the cost of damage caused to other people’s property in the event of an accident where you’re at fault. This type of coverage could also be a lifesaver if you own rental property. It would protect you from liability claims if someone is injured on your property or even if your tenant’s dog bites someone and you’re held responsible for it. And yes, that could happen in today’s litigious (​​li-TIJ-uhs) society. Another thing that an umbrella policy might cover could be quite unexpected, such as a judgment for slander or libel, which are injurious spoken or written statements. A note of caution there be careful what you say about someone on social media! Now, you probably think that any policy that protects you from all these potential disasters would have to be expensive, but actually, umbrella policies are quite reasonable. For up to $1 million in coverage, you’ll probably pay $150 to $300 a year. You might even find it cheaper if you have an independent insurance agent shop around for you. On today’s program, Rob also answers listener questions: ● Should you prioritize paying off your mortgage or investing for retirement? ● How conservative should your investments be in retirement? ● At what income level are you required to pay taxes?

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