Insurance, How Importance Is It?

Personal liability insurance, also referred to as personal umbrella insurance, is another product we use to keep our assets in tact. Since we live in a litigious society, we believe that it’s a good strategy to have an insurance policy that can withstand a financial blunder caused by a lawsuit.

What is personal liability insurance?

Your homeowner’s and auto insurance policies have added liability protection within their contracts. If you are found negligent in a situation where someone was injured, your liability protection will pay for things like personal medical bills, rehabilitation, lost wages, etc.

However, the coverage amounts are relatively low and can be quickly exhausted depending on the severity of the other party’s injuries.

Protection from a personal liability umbrella insurance policy will trigger once the liability protection from your other policies are no longer sufficient. It gives you and your assets added protection.

How about an example of where this policy is important?

Let’s say Bill injures Anne in a car accident. Due to the severity of Anne’s injuries, she is now disabled and cannot return to work. Her medical bills are $50,000.

Good news and bad news. Good news: Bill’s auto insurance policy has liability coverage of $50,000. Bad news: Do you think Anne and her attorney will only go after $50,000?

Not likely. Remember…

She can no longer work and provide for her family. She can no longer fund her retirement. She has ongoing medical bills she will have to pay because of her disability. Along with financial hardship comes emotional distress.

So if you consider her lost wages for 20 years, medical bills, retirement, and personal therapy, you’re looking at the possibility of millions of dollars. If Bill doesn’t have personal liability insurance, then his assets are exposed.

So what does exposed mean? They could go after your house, cars, boat, bank accounts, 401k, etc. Any asset owned under your name is at risk.

But you don’t even have to be “physically” involved in the scene of the injury to be at risk. If someone gets injured at your home and you are held liable of the damages, then your assets are at risk if you don’t have sufficient coverage.

If you are self-employed it is extremely important to obtain self-employed disability insurance. If you are an individual that works in a profession or operates some type of business as a contractor that is independent, a sole proprietor, a professional consultant, or are considered to be a partner in a business that is identified as a partnership, you are typically considered to be self-employed. If you report the income that you obtain from your work to the Internal Revenue Service each year through the means of a document called a “Schedule C” or the form identified as “1040″, then you are considered to be self-employed. While this form of employment has many perks and benefits, it typically does not include any type of insurance automatically. You must obtain the insurance that you desire on your own. Self-employed disability insurance is one of the most important, yet overlooked types.

What Is Disability Insurance?

In order to completely understand the importance of obtaining self-employed disability insurance, you must first gain an understanding of what disability insurance is. Despite the fact that you are self-employed, it is quite likely that you depend heavily on the money that you acquire through your work to handle your month to month financial responsibilities. Unfortunately, if you experience any type of sickness or become injured to the point where it affects your ability to work, you may find that you are unable to meet the financial obligations that you have. Disability insurance has the capability of providing you with the money that is necessary to continue fulfilling your responsibilities. In order to qualify for these benefits, you usually have to be under the care of a medical doctor and it must be determined that you are unable to work.

Policy Features

If you are self-employed and are considering purchasing disability insurance, it is important that you understand what policy features that you will be responsible for choosing. There are many different ways that you may adjust your policy to meet your individual needs in the event of a medical emergency. First, you will need to determine how much of a monthly benefit that you will need in order to handle your financial obligations. This amount will need to be as close to your monthly income as possible. Next, you will need to consider how long you want the period to be where benefits are paid to you in the event that you are unable to work. Next, you will need to consider the elimination period that you want. This is the total length of time that you will be considered disabled before the benefits that you choose will start to pay.

Exclusions And Basic Limitations

If you are interested in purchasing self-employed disability insurance, it is important to know that most policies have basic exclusions and even some limitations on what the company will elect to provide should a disability occur. In most instances, the following situations will not be considered for coverage:

- Individuals that become pregnant and are considered healthy will usually not be considered disabled.

- Any injury or sickness that is considered to be self-induced typically is not considered for coverage.

- Individuals that work in the military and become injured or ill or those that have suffered as a result of a war are typically not covered.

- If illness or injury occurred as a result of illegal drug use, coverage will not be extended.

- If an illness or injury has occurred while committing an illegal act, self-employed disability insurance will not cover it.

- Self-employed disability insurance typically does not cover any type of injury and/or illness that is considered to be pre-existing.