Like two children born on the same day, your auto and homeowners liability limits need to grow right along with your assets.
The liability limits in your auto and homeowners (including condo and renters) policies are all that stand between you, the careless things you do behind the wheel or at home, and your assets. You have a thoughtless moment, run a red light and tbone a car with a driver and two passengers. The passengers are 2 and 5 years old. You are 100% at fault and the bodily injury claim is catastrophic. Without the liability insurance you’ve purchased, you would have to sell your home to cover the hospital costs.
When you first go out on your own you have few assets: your car, a few pieces of furniture and electronics. You rent, not own, the house in which you live. Your auto liability limits could start at a modest level, but please understand YOU STILL NEED THE COVERAGE. Just because you don’t have much you think you don’t need to buy insurance, or just buy the minimum state coverage. The scenario above can still happen, you just don’t have anything to sell to cover the hospital charges. Without the help of the insurance, you would have a garnishment placed upon your paycheck for years to come, or face bankruptcy.
As your assets grow, your liability limits need to grow too. You get married, buy a first home your liability limits should be NO LESS than 100/300/100 (see last weeks’ blog to know what those numbers mean). Your homeowners insurance liability should be no less than 300,000. Buy a larger home, start a business: 250/500/100, homeowners liability to 500,000 and a 1,000,000 umbrella. Have more kids, business becomes more successful: 500/500/100 or 500 CSL and increase your umbrella to 2,000,000. Continue to increase your umbrella as your successes increase. Your assets and your liability coverages grow together.
Enjoy the journey, just make sure your assets aren’t sacrificed to save a buck along the way.