Common Blind Spot For the Newly Wealthy: Liability Insurance
Perhaps your company recently became public (e.g., Zoom or Pinterest). Or you expect that your company will IPO soon. Either way, your stock options and/or RSUs likely will translate to significant dollars. I help clients navigate the windfall from an IPO. A common blind spot for the newly wealthy is liability protection. Most new clients and prospective clients are unaware of the risk factors in their everyday lives, and how they could be an appealing target for nuisance lawsuits due to their new wealth.
PROPERTY INSURANCE: OVERVIEW
There are three types of property insurance. At least one of the three will apply to you:
- Car insurance is required by law.
- Homeowner’s insurance is required by the bank if you have a mortgage. Plus you want insurance to protect this valuable asset.
- Renter’s insurance will protect your belongings, and pay for incremental expenses if you were displaced.
LIABILITY COVERAGE
The most important component of these three policies is liability coverage, which protects you if you:
- Are at fault for an accident.
- Injure someone else.
- Damage someone else’s property.
- Need an attorney. The liability coverage pays for your legal defense costs if you’re sued as a result of the accident.
RISK FACTORS
You’re a busy professional woman. You may think you don’t need to worry about risk in your everyday life. But one of the risk factors highlighted at the top of this article may apply to you.
Let’s say you have a house cleaner who runs a load of laundry and doesn’t notice that it’s overflowing. The water floods and destroys your downstairs neighbor’s unit. You host a dinner party, and your dog bites one of your guests. You’re barreling down Telegraph Ave in Oakland on a scooter, and you seriously injure a pedestrian. Or you’re texting while driving and rear-end a car, causing serious injuries to the other driver.
The “liability” coverage through your homeowner/renter and auto policies protects you if you’re at fault. The liability protection through your homeowner/renter policy follows you. The accident doesn’t have to occur at your home. Liability coverage can cover your legal fees if someone sues you, including baseless lawsuits.
HOW MUCH DO I NEED?
You want the liability protection to be equal to 1-2x your net worth. The maximum liability coverage is $500,000. If $500,000 is insufficient, you may want to consider what's known as excess liability, or "umbrella", coverage.
TO LEARN MORE
To learn more, download the full guide: The Single Professional Woman’s Personal Finance Guide: Common Blind Spots That Could Cost You (Now or Later). I discuss liability insurance and three other blind spots: 401(k), disability insurance, and estate planning.