Monday, April 30, 2007
Liability insurance is intended to compensate others for damages you cause to them. The amount of coverage you need should be at least equal to the net value of the assets you own. Let me explain. In the event of a judgment against you, the money will come from one of three places. The first source is your insurance and if you have enough, then the damage stops here and both parties go their separate ways. If the judgment exceeds your insurance limits, then your personal assets, with some exclusions, may be used to settle the judgment. If your assets and insurance combined are insufficient, then a portion of your wages may be garnished until the debt is settled. In general, 25% of your annual income over a 10 year time period is a safe rule of thumb when calculating wages in danger of garnishment. With this in mind, most insured's who own a home in California should carry at the minimum 250k per person and 500k per accident in liability coverage on each auto they own. Homeowners with substantial assets will need to consider adding an umbrella policy in addition to these limits.