Why Insurance is not Enough
“I don’t need asset protection. I have liability insurance, plus an umbrella policy.”
Insurance does not provide adequate asset protection.
First, a professionally designed asset protection plan discourages lawsuits; insurance actually invites lawsuits.
Potential litigants are more likely to file lawsuits when they expect that your insurance company will pay them a large judgment or settlement.
On the other hand, a potential litigant who learns that your assets are protected and not available to satisfy a judgment will be discouraged from filing the lawsuit.
Second, insurance will only pay up to the policy limit. If that amount is surpassed by a large judgment, your assets are at risk.
This is especially relevant with today’s trend of large liability awards, increasing insurance premiums and decreasing insurance coverage.
Multi-million dollar liability judgments are commonplace today. To be adequately insured against such excessive judgments, you must pay huge premiums on a yearly basis. In contrast, you need only set up an asset protection plan once.
Thereafter, you will be permanently protected, no matter how large the judgment. Your annual insurance premiums can be reduced to a minimum.
Third, liability insurance will not protect against claims based upon other grounds, e.g., I.R.S. assessments, fraud, intentional acts, employment discrimination, sexual harassment, etc.
A professionally designed asset protection plan, on the other hand, protects against all claims.
Finally, an asset protection plan will provide benefits such as tax minimization and estate planning, which are not available from insurance.
We are often asked whether, based on the above, liability insurance should be cancelled after an asset protection plan is implemented.
We advise clients who have protected their assets to continue to maintain minimal liability insurance, thereby reducing their annual premiums.
A creditor or litigant who realizes that your assets are protected will leave you alone and deal directly with your insurance company, usually settling for the amount of the insurance coverage.
In addition, your conscience might be more comfortable knowing that if someone is indeed harmed, he or she will receive some reasonable compensation from the insurance company (not from you).