[quote=CDMA ENG][quote=flu]I believe one misconception is that trust automatically provides asset protection. I believe that revocable living trusts generally offers no asset protection.
If you are really concerned about exposure to liability/lawsuits, you probably should first ensure you don’t skimp on insurance. For most people, having a $2million umbrella insurance is all one really needs.[/quote]
Flu,
How did you come up with the number 2 million? Just curious? Today’s society is overly litigious and these days, I would think, they would find 2 million a lowly sum. Especially if there is a car accident with, let’s say, 4 people. That is only 500k per person and prolonged hospital expenses easily could exceed that. I know that insurance will cover some of that but there is always the pain and suffering cost as well.
I respect your math and comments as they are always well thought out so I was just wondering what your thoughts are on this one.
CE
PS This week I quit my old job and moved on to the dark side… AT&T[/quote]
Well, I picked $2million for a couple of reasons.
1)For most people, $2million just about covers their net worth..I dunno, I always thought that it was sufficient to insurance up to one’s net worth.
If you really get into a sticky situation, chances are your retirement accounts, your primary home, are not garnished…Also, if you also plan well, you also have put money aside for your kids in their name(s), which legally doesn’t belong to you and cannot be tapped.
So $2million probably covers the rest of one’s assets for most (not all) people.
2)Any sizeable policy like $1-2 million will be most likely be vigorously defended by the underwriter from lawsuits, regardless of whether it has merit or not….If you get a tiny liability coverage, you might very well be out of luck in which the insurance pays out that liability claim, and excepts you to “deal with” the rest of the liability. However, if you have $1-2million, you can bet your ass the insurance co isn’t going to just sit still…And one other thing…Lawyers for insurance companies (or any corporation for that matter) are usually > lawyers for individuals.
3)This is an umbrella policy, which provides additional liability above and beyond what other liability coverages your other policy has…..If you get into a sticky situation, umbrella kicks in after your other liability kicks in….As such, Umbrella coverages usually have rules that say you must ensure all your other insurance have a minimum liability coverage. So for example, in my case, I’m required to carry at least $300k in liability coverage for every motored vehicles (cars, boats, homeowners,etc) by my insurance co…..For me, I don’t skimp on auto liability, so I get the max available to me, which is $250k/$500k/$250k.
4)Imho… If folks are really worried about liability, then folks probably need to take steps to also ensure they aren’t exposed to liability risk and seriously weigh whatever benefit versus the risk….and it can be subtle…
Examples:
1) Let’s say you are considering buying 100k condo that cash flows $100/month…Should you really buy this? Well it depends…If you have almost no assets, then probably why not…..However, suppose you have $10 million in the bank… Do you really want to expose yourself to possible future liablity risk over $100/month cashflow? Afterall, what if someone slips and falls and cracks their head on your property and sues you for $10million?
2) Are you really sure you want to rent that jumper and place it in your home for your kid’s birthday, versus going to Pump it Up?
A wise relative once told me two rules
a)When you have no money, you spend most of your time trying to make it.
b)When you have money, you spend most of your time trying to prevent other people from taking it away….
