Are Your Assets Protected?
Most people don’t even know how to answer that question, much less feel confident enough to answer with a resounding “yes.” The truth is that most assets are naturally not ‘asset protected.’ This means that unless you have done some planning and maneuvering specifically aimed at asset protection, well…
These are the most common issues we see:
- Cash inside your company: This cash is most likely an asset which risks exposure to your company’s creditors and lawsuits. Many, if not most, people believe that the cash held inside their company has to stay inside that company. This may be true, but it may not be true. We see the latter most often in a pass-through entity like an S-Corp or LLC. It is definitely worth a conversation with your accountant and attorney.
- High premiums: Many business owners believe that they have proper liability insurance protection because their premium is so high. This is simply not the case. You may be significantly under insured in areas you should be insured and significantly over insured in other areas. Insurance really is like a piece of Swiss Cheese. Understanding what your risks are and how you are, or are not, covered is imperative. Not knowing can be devastating.
- Walking liability: Do you have personal liability coverage…and enough of it? An astonishing number of people we begin working with do not. The general rule of thumb in Texas (each state is different) is to carry liability coverage in the amount of your total net worth less the amount of your home, retirement accounts, and annuity and life insurance cash values. This is just a general guideline though. You can be sued for what is coming to you, which means your future income or a potential windfall could also impact what you need.
- Misunderstanding: Another common misconception is that if you have business liability insurance you are covered personally. This is simply not true. In fact, your situation is even more complicated and requires your agent or agents to fully understand your entire situation in order to make sure you don’t have gaps or overlaps in your coverage.
- Pointing fingers: More and more people have their insurance spread across multiple carriers with multiple agents. We have even seen situations in the same household with two different automobile policies with two different agents. Suppose one spouse is driving the other spouse’s vehicle and there is an accident. Which company wants to ante up? Neither! The more successful you are, the more important it becomes to work with a specialist to look at your picture holistically.
- Umbrellas: If you are successful, there is a good chance that you need a personal umbrella liability policy (see #3 for the general rule of thumb). Also, your base policy limits may not be as high as they need to be. Whomever writes your umbrella needs to see your base policies and vice versus. And always remember that the BIG PRINT giveth and the little print taketh away. Most umbrella policies require underlying limits of certain amounts to pay a claim. Make sure you adjust all your policies accordingly.
- Lowering Costs: Since most people build their success one piece at a time, they find themselves owning everything, or almost everything, in their name and/or in the name of their primary company. Unfortunately, this exposes each of the assets with the same ownership to each other and makes the case for needing more insurance. It might be time to look at how your assets are structured. A little restructuring and re-titling could possibly fix this issue.
Keep in mind that we are not your tax or legal advisor. We are also not your property and casualty insurance agent. These are all players in the field of protecting your assets. It is our job as your quarterback to bring light to the questions you need to be asking to protect yourself. After all, what good is all the hard work it took to build your success if you don’t take the time to protect it? Let us help you start on it today.