Insurance is Your Last Resort

Many people mistakenly believe that they don't need an asset protection plan because they're insured. Nothing could be further from the truth. While insurance does have a place in your asset-protecting system, it must not be your only line of defense.

Insurance proceeds are only paid in accordance with the terms of the policy. Sure, insurance companies are in the business of accepting the risks of others, but it's on their terms.

Think about how casinos make their money: Casinos know that some people are going to win at the tables, for example, but because far more people lose than win, at the end of the day the casino is going to show a profit. Insurance companies have a similar philosophy to making a profit: they know that some policyholders (customers) will suffer an accident for which the insurance company has to accept liability, but many more people will have accidents for which the insurance company is not responsible, or they won't have an accident at all.

Why do more people walk out of a casino as losers rather than winners? It's because the casino makes the odds, and the odds are in their favor. Now let's think about insurance policies, which are based on the "odds" by which the insurance companies issues policies. Who writes those policies? That's right -- the insurance companies. So of course, the policies are in their favor.

With all of this in mind, there are two main concerns about relying solely on insurance policies for your asset protection:

First, policy limits - You should always know how much the policy will pay out in the event that a claim is filed. In many situations, it is impossible to know how much coverage you need, especially with respect to liability policies, since you don't know how much of your money a sympathetic jury might give away in the event of a lawsuit. Still, you can often tell how much coverage is too little, especially for property policies that insure damage to a specific asset that can be appraised.

Second, policy exceptions - All insurance policies are not equal, and many times the insurance company will "put the odds in its favor" by carving out endless exceptions to its policy. Accordingly, it is imperative that you know exactly what types of accidents, events, and damages the policy covers.

Just as important as the exceptions to a policy, an insurance company can be relieved of having to honor a claim if proper filing procedures are not followed. Many times a policy will specify that a claim has to be filed within a certain period of time after an accident has occurred, or if changes have occurred to the business or property covered by the policy.

And always look for whether a liability policy has a duty to defend clause. Such clauses state that in the event that the policyholder is sued, the insurance company will provide an attorney to defend the suit.

Regardless of the type of insurance policy you have or are considering purchasing, always keep in mind that any policy will only fulfill its role as a last defense in your asset protection system.

To be certain your assets are fully protected, be sure to read Trump University Asset Protection 101: Tax and Legal Strategies of the Rich by J. J. Childers.