Dave Sather's Money Matters: Covering personal liability

July 19, 2011 at 2:19 a.m.

There will be a special place in heaven for my mother. She raised three rather active boys and a fourth, if you count my father.

As kids, Mark, the youngest, could do no wrong in my mother's eyes. Every time there was a fight, Mark was innocent - or so my mother thought.

So it gave me great joy to go off to college. I was now 600 miles away and Mark would finally have to answer for his devious ways.

With me studying at Texas Lutheran, my father contemplated dropping his personal liability umbrella insurance policy. He reasoned that I would only drive his car when home on break and Mark was only 14 - too young to drive.

Dad saw an opportunity to save $100 a year.

Although my father considered this, he realized that even with limited driving, I still presented a risk to everything he and my mother had saved. Additionally, Mark would be driving in no time and there were the usual risks associated with managing the average house. So he kept the umbrella policy.

A personal liability umbrella sits on top of the existing liability coverage offered by your home and auto policies. As such, you typically have $300,000 of liability coverage through your homeowners and auto policies with the umbrella providing additional coverage of at least $1 million. It does not cover you for business risks.

When you combine the underlying coverage and the umbrella, $1.3 million in coverage may seem like overkill, as many don't think they have a lot of assets to protect.

However, it is not just the assets we are looking to protect. One of the largest benefits of liability insurance is having the insurance company hire and fund lawyers to come to your defense - no matter how stupid an allegation against you may be.

Furthermore, the PLU is possibly the cheapest insurance you can buy with a base $1 million policy often costing around $150 per year.

Fortunately, my father understood these benefits.

As kids, we did not get an allowance. If we wanted money, there was a yard to mow and cars to wash. In fact, we'd wash the car almost every week. As such, we'd carefully pull the car into the driveway to soap it up.

Once I was away at college, the revenue opportunities fell to little brother.

On one particular Sunday, Mark finished washing the car. However, instead of parking it in front of the house, he took it for a bit of a joy ride. As my brother turned the corner to return to the house, he hit a patch of ice. The brakes locked and the car slid straight into a rock wall. Although the car suffered quite a bit of damage, fortunately my brother was OK and no one else was hurt.

However, it reminds us that life is complicated. No matter how careful you may be, you cannot completely eliminate risks. If you own assets, they will present risk back to the owner. Also, other people can bring you into the liability loop without you ever knowing about it.

As such, having appropriate insurance in place before you need it is the key - even if it costs a bit more each year.

As a side note - in all fairness to Mark - I used to take the car out for a spin, too. I just never took it ice skating.

Dave Sather is a Victoria Certified Financial Planner and owner of Sather Financial Group. His column, Money Matters, publishes every other Wednesday.



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