Many estate planning clients, when they contemplate ways to protect their assets, instinctively turn to sophisticated strategies, such as generation-skipping trusts. They may not think of insurance policies, even though insurance is, of course, all about protection.
But several different types of insurance can help with various forms of asset protection, often with less cost and fewer hassles than a trust requires, especially for clients with fewer assets to protect. Here are some alternatives you can provide for clients worried about losing their wealth:
Umbrella liability insurance: Wealthy people are always at risk for lawsuits, often of a frivolous nature. Liability insurance is a first line of defense against someone claiming a tortious injury against your client — for example, claiming they were injured on the client's property. These policies generally cover not just any losses but the costs of legal defense as well.
The most common use of umbrella policies is actually as an extension of someone's auto insurance. According to one estimate, 85 percent of all umbrella insurance claims are related to car accidents. Obviously, a tragic car accident can result in monstrous medical bills that can potentially run into the millions.
Liability insurance is surprisingly inexpensive. Estimates come back at just $200 to $300 per year for $1 million in coverage. So an entire $5 million estate could be protected for less than $1,500 a year. At the same time, it's possible to be sued for more than the value of the client's current estate. If a judge allows a plaintiff to garnish your client's wages, his or her retirement fund and even future earnings could be at risk.
Business protection: Liability insurance becomes doubly important for business owners. And it's not only because a business is more likely to see accidents or other mishaps take place on the property or in the course of conducting business.
First of all, the company itself could be at risk, not just the owner's personal assets. Liability insurance can also protect against personal injury, including slander and libel, and claims resulting from false or misleading advertising. It does not, however, protect against employees' claims for worker's comp.
This insurance is especially important for business owners whose firms are structured as partnerships or sole proprietorships. Even a limited liability partnership could endanger an owner's assets if that owner has been found to have acted in an illegal or egregiously irresponsible manner.
