Rule number 3: Consider insurance – the right kinds of insurance.
Many liability claims arise out a claim of negligence against an alleged wrongdoer, such as an auto accident, dog bite or perhaps professional malpractice. Most insurance is designed to cover losses caused by someone’s negligence.
A question that is sometimes asked is whether or not a particular kind of insurance is a good investment. That is the wrong question. Insurance is not an investment, but instead a risk management tool. One should consider insurance for activities in which they participate which could cause them to be exposed to liability or loss that they could not afford to pay. Common examples that are familiar are auto insurance and homeowners insurance. Many persons also have health insurance and life insurance. Often overlooked, however, are disability insurance, expecially for breadwinners and, later in life, long term care insurance.
However, for those who own businesses, other insurances should be considered. There are numerous types of insurance coverages for different types of businesses. These include workers compensation (which is mandatory for companies with employees), key person life insurance, general liability, business interruption, directors and officers, and errors and omissions, to name just a few. There are insurance brokers who specialize in particular industries, such as physicians, trucking, food service, etc.
Proper insurance coverage in the proper amounts are important considerations in asset protection planning. One should not just buy insurance on a piecemeal basis but to work with an experienced insurance agent or broker who works with many companies so that an insurance plan can be tailored to your individual situation.
The amount of insurance is also a key consideration. Very low limits of coverage offer very low levels of protection. Adding substantial amounts of coverage over a basic policy can often be obtained by what is commonly called “excess” or “umbrella” coverage. An experienced insurance agent should be able to guide you on this issue.