How much liability insurance should I carry?

[Steve S.]

 I believe the policies i have are $300,000 of liability.  What would compel me to purchase more?

Should my personal net worth play into it at all?

[Anthony Lee]

@Steve S. I have seen significant confusion regarding this on several threads. Please note that I am an Insurance Agent, not an attorney. 

Your personal assets, any business assets you may have, your current and future salaries/wages, etc. Should all be taken in to account. That being said, liability coverage is relatively inexpensive and is something everyone should take seriously. 

Consider the average person. If someone's going to file a lawsuit, its likely they're angry and upset, whether the reason is valid or not, its likely at that point, they're looking to get every penny they can out of you. 

Consider the average personal injury attorney. If the assets, business, salary, etc, are there, the attorney will likely find it and they'll throw a suit for $1Mil or more in damages.  Is the injury worth $1Mil? Who knows, but just like the angry plaintiff, they'll likely want to get every penny they can from you. 

It is important to remember that insurance policies generally have a duty to defend you in the event of a liability claim and it is important to know whether these defense costs are included in the Liability Limit or if they're covered separately. 

That being said, it is also important to have the proper amount of insurance coverage. 

For example, if a college student with not a penny to their name has a $10 Million Dollar Umbrella Policy, it is likely that they're extremely overinsured. On the other hand, the average homeowner, should have at least a $500k in liability coverage on their policy and it is always recommended that they consider having an personal umbrella policy in place.  

Now, I don't know your particular situation, but consider the average person that is active on these forums. It is very likely that they own at least one property and are looking to grow their wealth in one form or another. In a situation such as this, it is critical to have high, but appropriate, liability limits in place. Especially since the cost of such coverage is relatively low. Typically, the difference in cost between a $300k Limit and a $500k Limit is less than $40. Good personal umbrella insurance policies can typically be had for less than $500, per $1,000,000 of coverage, and you only need one umbrella to cover all of your personal lines (Auto, Home, Rentals, Boats, etc) 

Commercial Umbrella or Excess Liability policies, for 1-4 Family and Apartment Buildings will generally average at less that $700 per million of coverage and typically, one policy can cover all of your rental properties. 

It is also important to note that not all insurance policies are the same and it is prudent to be sure that the policy provides proper coverage for your particular exposure.

The question of LLC vs Umbrella also is very common on these threads. This should not be a question.

(I do however recommend that you speak with your attorney and/or accountant with regard to the associated legal and tax concerns as I speak strictly from an insurance perspective.)

While yes, a LLC may limit liability to the entity, and may provide tax advantages, it does not remove any liability, or risk thereof. If structured property, an LLC will act as a separate entity which you own. The limitation of liability here is that if the LLC is sued, the owner's, or member's, personal liability, outside that of the LLC, is generally limited. If it is reversed, and you are personally sued, your ownership stake in any LLC's, businesses, assets, etc., that you may have are likely to be at risk.

Regardless of the your asset structure or size, it is prudent to have proper liability coverages in place.

Feel free to reach out offline if you like, my information is below, if you have any further questions.