Liability insurance? How this investment can protect your family from the unexpected

Do you have enough liability insurance coverage? Many people don’t.

You have the opportunity to purchase liability insurance coverage on both your homeowners and auto insurance policies. Many people carry the minimum amount that’s offered by their insurance company or what’s required by law.

That could be a costly mistake. Accidents happen. Perhaps someone slips and falls on your property. Or you are in a bad car accident. If you’re the subject of a lawsuit, damages can run into hundreds of thousands or even millions of dollars. Although your 401k and IRAs are most likely shielded from a liability claim, your non-retirement accounts and other assets, such as your home equity, could be at risk. Even worse: You could be forced to pay a judgment from both your current assets and your future earnings.

That’s why you should make sure you and your family has enough liability insurance coverage in both their homeowners and auto insurance policies. Higher-income households also should consider a stand-alone umbrella insurance policy. These liability-only policies provide a minimum of $1 million in coverage against lawsuits. Don’t think you need that much coverage? Think again. Umbrella insurance policies can also pay the costs of defending you in a lawsuit, which can quickly add up — even if you win your case.