Protecting Assets?

[BigMoneyJim]

The incorporation thread under "Other Topics" got me wondering about protecting my assets. That thread had more to do with protection against health related expenses causing bankruptcy in retirement.

But as a young dreamer who is just now debt free and having under $100k liquid assets I wonder if I should start thinking about protection. (By liquid assets I mean only if you figure in future SS and vested DB pension benefits would I break $100k net worth.)

What kind of protection might I want, and how much relative to my assets? Almost all of my money is in a 401(k) and an IRA. I don't yet have after-tax savings to speak of, but it will start accumulating this year.

I have health insurance capped at $1mil or $2mil through my company. I have disability coverage through work but I don't know the details or portability. I have more than the minimum auto liability insurance, but I'm wondering if I need to ratchet it up as my assets increase. Also, at some point I suppose I would want an umbrella policy? Oh, and I have renter's insurance that I think has a liability element for people who trip through my doorway.

I've never had any court involvement (except as a juror once) and never had any liability claims against me. I've never had an auto accident that was my fault. So I'm lucky but uneducated in these areas. And up until now my liquid net worth was close enough to zero that I never had to think about it.

 

[Martha]

The incorporation thread under "Other Topics" got me wondering about protecting my assets. That thread had more to do with protection against health related expenses causing bankruptcy in retirement.

But as a young dreamer who is just now debt free and having under $100k liquid assets I wonder if I should start thinking about protection.
What kind of protection might I want, and how much relative to my assets? Almost all of my money is in a 401(k) and an IRA. I don't yet have after-tax savings to speak of, but it will start accumulating this year.

I would consider ratcheting up liability limits on insurance as you have more to lose. Umbrella policies can be quite cheap so at some point you might look into that.

I wouldn't let the tail wag the dog. Inotherwords, don't buy something you don't want , just because that asset is protected from creditors. But it is still nice to know what exemptions are available in your state.

Just thoughts, not legal advice.

 

[MSDOGS1976]

An umbrella policy is a good idea as your assets grow. I have a 1 mil policy. Not sure what levels they sell those at but I would go ahead and get one as they are cheap anyway. Good thinking and good luck!

 

[brewer12345]

I would get an umbrella policy. I live in a state where insurance is expensive, and a $1 million umbrella policy is less than $200 a year.

 

[vicky]

We also recently got an umbrella policy. 1 mil was something like $140. They did require a slightly higher liablity limit on the cars. Umbrella had to be with the same company as we had the rest of the insurance. It is much more of a peace of mind because I assume whenever you are considered for being sued, the first thing they will look at is whether there is something to get. The lawyers of the insurance company will get make sure they don't have to pay up. It is definitely worth it.

 

[Trace]

When signing up for the Umbrella Policy, you may want to add the Uninsured Motorist Endorsement. In some cases, this is an add on and is not standard. This endorsement will be very important if you are seriously injured through the fault of an uninsured motorist. Check with your agent to get more details.

Also, pay attention to and maintain the required underlying limits on the Auto and HO policy. A lot of policies require you to maintain at least $300K on the Auto and HO policy.

 

[Nords]

We maxed out our auto policy with UM/UIM and liability/property damage. If you go with different companies for auto & umbrella liability, the additional auto coverage with the auto insurer is usually cheaper than the equivalent umbrella policy from the liability insurer. Besides, operating an auto is the most liability-invoking thing I do these days.

For those of you with good healthcare, we still carry a heavy load of UM/UIM for our kid's benefit. If she ends up with an injury requiring lifetime care and we can't recover assets via a civil/criminal suit, our TRICARE won't cover it after she's no longer our dependent.

Every year or so-- when I have plenty of time and a high pain threshold-- I compare rates among USAA, Armed Forces Insurance Exchange, & GEICO (with our Berkshire Hathaway discount). AFIE is still winning the "race" although their premiums have jumped from Florida's hurricane summer. But it's amazing how complicated the various offerings become among limits, deductibles, discounts, "rebates", and other gimmicks. Even with a spreadsheet it's hard to summarize the results, and the difference is usually less than 1%. OTOH we've realized that we can self-insure for much of it-- we've raised our hurricane deductibles to about $15K and our other deductibles to $5K. And we don't carry any auto collision/theft insurance.

If we ever buy more rental property, we're going to have to take a good hard look at landlord's liability insurance and LLCs. Thanks for pointing that out, Martha.

 

[cute fuzzy bunny]

One sidebar. Applying for an umbrella policy can be a fairly invasive procedure. My insurance company sent me a 10 page questionaire that included everything from minor legal brushes within the past 5 years and whether I owned dogs and what breed they are. When my agent called to ask how the questionaire filling out went, I told him "Good. My pants fell off halfway through". Which is roughly how I felt.

Some things that can prevent you from getting a large umbrella or at least make the cost very high:

- You own a boat with a large motor
- You own a pool
- Dogs of the "bad breeds" like pit bulls, rottweillers, etc.
- A DUI conviction or other potentially high liability legal issue

I think you get the idea. Now if your pit bull was arrested under the influence of alcohol while driving a pool with a large motor on it I think you're screwed...

 

[wzd]

...If we ever buy more rental property, we're going to have to take a good hard look at landlord's liability insurance and LLCs. ...

LLC's are cheap, and easy to set up. In Colorado, the DIY fee is $50 to the state, and $0.99 renewal per year. It does vary by state, and if multiple state become involved, a legal opinion on where to file may be warented. I got a book from the library to read about them - It was a NOLO series or one like that. Our rental property is in one.

Also, single owner and husband/wife LLC's can be set up to be disregarded entities for tax purposes, so the taxes don't have to get more complex.

 

[JOhn Galt]

To add to the TH list, some insurance companies don't
like bikers either.

JG

 

[wzd]

Trampolines are another thing. A friend had theirs blow over a fence in a windstorm, and had a damage claim. The insurance company then sent them a letter telling them their insurance would not be renewed if they kept the trampoline, and had to send a letter indicating it had been taken down.

 

[lets-retire]

You might want to check your state laws. Some states exempt your homestead and any funds in a retirement account from any liability in case your sued. The way I understand it if you have 15 mil in a 401K and a 30 mil house as your only assets you can be sued for 50,000 and never pay it off because the only assets you own are protected, in some states.

I work in a high liability job and was looking into the same insurance your talking about then discovered I live in one of those states. Since my the majority of my assets are my house and retirement acc'ts I chose to save the money, in a retirement acc't of course.

 

[caseynshan]

I would get an umbrella policy.  I live in a state where insurance is expensive, and a $1 million umbrella policy is less than $200 a year.

The problem with an umbrella policy is the exceptions. I was going to buy a policy and went throught the three most likely scenarios that I felt were likely for me being sued. All three were under the "exception- we don't cover" clause.

 

[brewer12345]

The problem with an umbrella  policy is the exceptions. I was going to buy a policy and went throught the three most likely scenarios that I felt were likely for me being sued. All three were under the "exception- we don't cover" clause.

I'm curious: what are the exceptions you are referring to?

 

[vicky]

my application took less than 5 min to fill out. The exception was that customers at my home-based business were not covered. Since my business is all internet based I did not have to worry about it anyway

 

[wzd]

Caseynshan, Vicky -

Are you referring to a commercial or personal umbrella policy. One "cost" of my holding property in an LLC is that I have both. The personal one does except business related items.

Wayne

 

[caseynshan]

Caseynshan, Vicky -

Are you referring to a commercial or personal umbrella policy.  One "cost" of my holding property in an LLC is that I have both. The personal one does except business related items.

Wayne

That is what the problem probably was, they were business related

so in a way there is no extra "cost" as I have the exception problem whether the businesses are setup as LLC or not (1. wife doing contract work driving around town, going to people's homes / 2. rental home issues)

 

[caseynshan]

So I requested some books from the library, but I'm antsy... so one more question(and thought others might be curious)

# 1 on the LLC submission form it asks?
Please select one
-- Management is vested managers
---Management is vested in members


any explanation as to what that means.

 

[wzd]

Either the members jointly manage the LLC or they appoint a manager to do it. I searched around the web for a better description and from http://www.businesspowerlaw.com/13/605 :

Generally, the operating agreement for a "Manager-Managed LLC" - in which one or more managers have all operating and management authority - delegates this power to a designated manager while the operating agreement for a "Member-Managed LLC" -in which the members themselves maintain the authority to manage - reserves the administrative power for the members.

 

[vicky]

Caseynshan, Vicky -

Are you referring to a commercial or personal umbrella policy.  One "cost" of my holding property in an LLC is that I have both. The personal one does except business related items.

Wayne

We got the personal policy I guess. I am mainly concerned about being sued over car accidents or something like that and look all my savings and the house etc..

Our business is selling books over the internet. I can't see how we can get into any lawsuit over that (maybe somebody dropping an encyclopedia on his foot?). The business is included in the policy with the restriction that we can't have customers/vendors at the house.

Vicky

 

[dogduo]

I am curious to know if you must get an Umbrella policy from your current insurance provider (home, car, etc.) or can you go to any broker and tell them you want an Umbrella policy? I own a home which I finally have lots of equity in which I would like to protect. I live in California where everyone sues for any imaginary reason!

 

[farmerEd]

I am curious to know if you must get an Umbrella policy from your current insurance provider (home, car, etc.) or can you go to any broker and tell them you want an Umbrella policy?(

Don't know if its a "rule" that all companies follow, but for my umbrella policy the company that provides it also required that they have my homeowners and car insurance policies, and that those policies had high enough limitations on them already. They don't want to be the umbrella policy for someone that bought the very cheapest car insurance they could, since the umbrella doesn't kick in until after the other policy limits are hit.

I have a $1,000,000 policy, ontop of the homeowners and 2 car insurance. According to my agent the most likely way the umbrella is going to get used is as a result of a car accident. It only costs about $300 per year. I may be doubling the coverage to $2 million next year, for an additional $250 fee.

Short money imo. If you got enough dough..someone is going try and take it someday.

 

[vicky]

Don't know if its a "rule" that all companies follow, but for my umbrella policy the company that provides it also required that they have my homeowners and car insurance policies, and that those policies had high enough limitations on them already. They don't want to be the umbrella policy for someone that bought the very cheapest car insurance they could, since the umbrella doesn't kick in until after the other policy limits are hit.

I have a $1,000,000 policy, ontop of the homeowners and 2 car insurance. According to my agent the most likely way the umbrella is going to get used is as a result of a car accident. It only costs about $300 per year.

Yes, my insurance company also required home and all vehicles to be insured with them. Premium for the three cars did not go up much. It is still way under $1000/year (TX). My umbrella cost is half of yours. Our rental property also falls under it.

Vicky

 

[Janie]

Vicky and others,

One reason umbrella policies are so much less expensive in TX than in other states is that TX has pretty extensive asset-protection laws that make it harder for someone to take away everything you own with a lawsuit. Items which are exempt include the full value of your home, all retirement accounts (IRAs, 401Ks), $30,000 per person in cash, and personal effects like one vehicle, jewelry, clothes, etc.

This is much more generous than other states.

 

[Janie]

For the lawyers on the board (Martha M and others),

I wondered if Congress is moving to enact national legislation to protect retirement accounts like IRAs and 401Ks from lawsuits, especially now that few employers outside of the gov't offer traditional pensions, and most people are dependent on those savings to retire.

I know that some states consider IRAs to be savings accounts and do not protect them from creditors in the event you are sued. 401Ks are also not protected in some states -only the employer's contribution is exempt. This is hard to swalllow.