Insurance is an important part of everyone’s life.
Think of it as risk management. You’re paying money (called a premium) to an institution to shift the risk from you to them. They dilute that risk by insuring a hundred million people. By shifting that risk, you’re using insurance to protect assets. Because if something unexpected happens, your insurer will be on the hook rather than you.
You can get insurance for all kinds of things. Some of the most common types of insurance include:
- Renters (sometimes called fire insurance)
- Business overhead
- Personal liability
- Professional liability
- Directors and officers coverage
It’s a long list.
Most people don’t need all of those different types of insurance to protect assets, though, so the question then becomes: what kind of insurance should you get?
Some of these are pretty universal. If you own a car, you need car insurance. Own a house? You need homeowners insurance. And, of course, everyone should have health insurance, and life insurance if you want to provide a financial cushion to someone in the event of your death.
But what about other types of insurance?
Is Malpractice and/or Liability Insurance Enough to Protect My Assets?
Insurance is just one line of defense. It’s important that you get it. However, insurance companies are going to do whatever they can do to avoid paying it out. And sometimes you don’t have enough coverage for unforeseeable claims. So the short answer is: no. Malpractice insurance is insufficient.
Malpractice insurance is the first line of defense with respect to liabilities deriving from you providing professional services. However, there is a limit to the coverage you can enjoy, and often insurance companies find ways to avoid paying. After all, there’s a whole area of law dedicated to insurance coverage disputes!
Since insurance coverage is limited to the purpose for which it is obtained (such as professional malpractice), and creditors can still attack your personal assets, it’s important to engage in asset protection planning with an attorney that focuses exclusively on that area.
To add further clarification, as an owner of your business, you probably believe you are not exposed to personal liability. That’s probably why you incorporated in the first place, right? Unfortunately, that is not entirely true.
Some accountants place people in s-corporations, because they are the most advantageous for tax purposes, but they lack the protection of limited liability companies (LLCs) and limited partnerships (LPs). Consequently, your ownership interest is at risk of being taken away from you even if you’ve played by the rules.
That’s because a single-member LLC and any corporation (including s-corporations) do not protect an owner’s interest in them from creditors of themselves, personally. Therefore, creditors of an owner for a personal liability can attach to the business interest and take it away to satisfy a judgment.
This is probably very frightening to you as a business owner. The bottom line here is to obtain liability insurance to protect assets (especially malpractice) if you can. Invest in strong agreements with customers, vendors, and employees. Convert to a business entity that provides more protection for business and personal creditors.
There are many tools to use, such as annuities, qualified retirement vehicles, homestead, trusts, and so on, so be sure to engage in Business Planning and Asset Protection Planning to ensure you are protecting your business and your family.
Insurance is key to estate and business planning. It helps with tax planning, business succession, and overall income replacement for families.
Should I Consider Long Term Care Insurance During the Estate Planning Process?
Short answer: yes.
You should absolutely consider long term care insurance, because depending on the amount of assets you have and the speed at which you’re going through them, it behooves you to possibly look into insurance that will pay you beyond retirement, should it become necessary.
Hi. Welcome back. This is Barry Haimo. Another dose of Bite-Sized Bits of Knowledge, where we try to give meaningful information in a short amount of time. I’m going to limit today to two minutes just because I have just proven that I cannot limit it to 1 minute. I had too much to say, so I’m sorry. So, starting the clock.
Today we’re going to talk about insurance. Nobody likes insurance, and insurance brokers have a bad rap. But insurance is a very important part of life, and it’s an important part of planning. So, different kinds of insurance that you would expect to encounter in my world are life insurance, disability insurance, umbrella insurance, general liability insurance… Obviously, there’s the auto and the home and whatnot.
But one insurance that gets a bad rap and doesn’t get enough attention is long term care insurance. Long term care expenses will decimate an estate easily with today’s expenses and today’s costs. It’s very important that you look into them, because now they don’t really do long term care insurance as standalone policies. They do life insurance policies with, like, a rider that allows you to use the benefits now during life for those purposes.
And so there’s a really valuable policy to look into. All I’m saying is look into it and at least do your due diligence before you make a decision. But there’s a lot you can do with insurance in terms of life insurance to mitigate taxes, give away to family… You can use them for investment purposes. And also disability is preserving your biggest asset, which is to produce income and of course, your general liability for asset protection from creditors.
So I hope that’s helpful. Thank you very much for stopping by. And stay tuned for more.
If you don’t have insurance, get a good financial advisor. Reach out to Haimo Law, and we can refer you to our trusted advisors.