Is insurance enough for protecting me from lawsuits?
I get a lot of calls from people wanting to know if insurance is enough for their asset protection plan. I know what they want. They want me to tell them yes…you’re all good!
If that were the case, I could retire (or at least be unemployed because there is no more need for my services)!
I understand where these people are coming from. You’re doing everything right. You’re a good person. You’re not doing anything shady.
Insurance companies don’t make profits by paying out claims though. If there’s a way out of paying a claim, you think there’s not going to take it?
Here’s a story of a good person doing everything right…
Imagine you invest in a rental property. You’ve got all the right insurance for your landlording activities. Everything’s paid up. You’ve hired a professional management company to run and maintain the property.
Things go well and you sell the property for a profit. The sale closes and you celebrate your status as a boss real estate investor. Time to pop some champagne.
Then the next day you get a call. Day one of you not owning the property anymore. Turns out the tenant got wasted and started a Jiffy-Pop kitchen fire. Too lit to give a f**k, one person dies on the couch in the blaze. The other manages to roll out the door to give an incoherent play by play of the events.
In a post-responsibility world, somebody else has to pay for the price.
The surviving family begins to sue anybody who ever came near the property.
The former owner is sued because why not? Fortunately he did everything right. The property was safe and maintained. He had insurance. In fact the liability insurance policy still had months before expiring.
The insurance company saw it a different way.
The company called the former owner and said *technically* since you don’t own the property anymore, we have no obligation to defend you or pay any claims related to this lawsuit.
Now the former owner is all on his own to fight the lawsuit. Not only that, but two family members were also being sued because one person deposited a rent check for the owner and the other person once helped clean the property (yes, you can now use that excuse if somebody ever asks for your help cleaning).
What’s on the line now that the insurance company has skipped out of the picture? The investors personal residence, savings, and other assets. Same goes for the two family members named in the lawsuit.
Unfortunately, your insurance company won’t always be there for you. Insurance is always the first stop for any asset protection plan, but you need to have a Plan B in case the jerks find a way to deny your claim!
Colin Ley is an Offshore Asset Protection Trust attorney. He is the co-founder of the firm, LayRoots, along with his wife, Shreya Ley.