While it’s one thing to have insurance for specific risks, it’s quite another matter to have enough insurance. How much is enough? The answer is different for everybody. It depends on what you want to protect and how much risk you’re willing to assume yourself. Let’s say you have a net worth of $1 million. (Congratulations, by the way.) That’s the total value of your various possessions: home(s), car(s), furniture, art, stock and bond holdings, mutual funds, etc. One million dollars is also how much you have to lose. ∗ Imagine this. Say that famous person you hit in the intersection sues you for loss of income, pain and suffering, etc. Basically, the most this person can get from you is . . . $1 million. Let’s say your current auto insurance policy has a limit of liability that will pay a maximum of $100,000 to any one person involved in an accident with you. (That’s a pretty common limit, by the way, although not for people with seven-figure net worths.) If you’re sued for $1 million, your auto insurance will pay a maximum of $100,000, which leaves you holding the bag for $900,000.
Keep in mind that most people who have significant assets and decent incomes can afford to purchase liability limits high enough to equal their net worth. Whether they choose to is another matter.
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