How much liability insurance is really needed?

How much liability insurance is really needed?

 

Auto Insurance Quotes : I have a good understanding of liability insurance and why I need it, but how do I know how much to get?


Deciding how much liability insurance you need should focus on two primary areas: Auto insurace and home insurance.

Asking your insurance agent will often get you the classic reply, “Buy as much as you can afford.” While this is sound advice, it doesn’t help you decide on an amount.

Ask yourself, “What am I protecting?” This is the key. For example, when you compare auto insurance rates, you are protecting 1) your car, and 2) your net worth.

Similarly, when comparing home insurance rates, you want to protect 1) your home, and 2) your net worth, including the equity in your home.

If you’re seeking business insurance, you’re trying to protect 1) your business, and 2) your personal net worth.

Therefore, calculate your net worth by adding the value of your assets minus any loans that apply to them. For example, you own a home worth $225,000 with a first mortgage balance of $90,000. Your net worth for this asset is $135,000.

Bank and investment accounts are worth $75,000. Your auto(s) are worth $60,000, with loans of $40,000. Add this $20,000 equity to your accounts ($75,000) and home equity ($135,000) to realize a minimum net worth of $230,000.

Add this amount to the value of the auto, home, or business to arrive at a minimum liability insurance amount you should carry for each policy. But, if you can afford it, buy more.

Where have you heard this before?

Posted by Nikkei 225 at 09:33
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