How Much Is Enough?

It Depends

While it's one thing to have insurance for specific risks, it's quite another matter to have enough insurance. How much is enough? The answer is different for everybody. It depends on what you want to protect and how much risk you're willing to assume yourself.

Let's say you have a net worth of $1 million. (Congratulations, by the way.) That's the total value of your various possessions: home(s), car(s), furniture, art, stock and bond holdings, mutual funds, etc. One million dollars is also how much you have to lose.

* Imagine this. Say that famous person you hit in the intersection sues you for loss of income, pain and suffering, etc. Basically, the most this person can get from you is . . . $1 million.

Let's say your current auto insurance policy has a limit of liability that will pay a maximum of $100,000 to any one person involved in an accident with you. (That's a pretty common limit, by the way, although not for people with seven-figure net worth.) If you're sued for $1 million, your auto insurance will pay a maximum of $100,000, which leaves you holding the bag for $900,000.

Ideally, your liability insurance limits should come close to matching your net worth. After all, someone can't sue for something you don't have. You may be willing to assume some risk here, believing that you're very, very unlikely to ever be sued for anywhere near your net worth.

Consumer TIP: Remember that your net worth is basically a target for attorneys representing someone who has suffered injuries, lost wages, and had pain and suffering as a result of something you did. In addition, it can cost only a few hundred dollars more a year to have a liability limit of $1 million as opposed to $100,000.

In deciding how much insurance to buy, you must consider what you have and what it costs to provide the level of coverage you're comfortable with.

Keep in mind that most people who have significant assets and decent incomes can afford to purchase liability limits high enough to equal their net worth. Whether they choose to is another matter.

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