Before I write about a must have insurance policy, let me make it clear that I do not sell insurance. I’m a fee-only financial planner and never sell anything, period.

Upon engaging a new client, one of the first steps in our financial planning process is to assess your current risk management plan. Playing devil’s advocate, I simulate worst case scenarios. What I’m looking for is your current exposure level to risk or put another way, what’s your asset protection strategy. Do you have an asset protection strategy that’s bullet proof? Can you withstand an aggressive attorney’s attack on your hard earned assets or are you vulnerable and exposed?

Over the years, I’ve discovered that while most new clients have put quite a bit of focus and attention on their investment strategy, they have paid scant attention to a well thought out strategic asset protection plan. The reason is simple; it’s hard to imagine that in a split second, an event could occur that would alter the course of your life forever. Let me provide you one real life example that occurred with one of my friends on the east coast.

My friend’s daughter graduated from high school last year. She was a 4.0 student and very responsible. One afternoon, prior to graduation, she attended a party at a friend’s house. Upon driving home from the party, she hit a young man on his bike. She was not driving under the influence; in fact she had stopped drinking a few hours before she drove home. None the less, the biker was seriously injured. It wasn’t long after the accident occurred that my buddy was sued by the cyclist’s attorney for $2 million.

My friend had $300,000 of liability coverage on his auto insurance, no umbrella policy and was being sued for $2 million. Long, painful story short, they settled out of court for a very large sum of money. Fortunately, the cyclist recovered fully. Now how could my friend have avoided this financial disaster? Answer-a personal umbrella liability policy.

Umbrella policies extend and increase the liability coverage of other insurance policies. It’s one of the smartest, easiest and most economical insurance policies you can purchase. $1million or $2 million personal liability umbrella policies are usually moderately priced and AAA has some of the best prices available.

I’m not a big fan of insurance in general. But this is one policy you must have in your asset protection arsenal. If you’re not sure how resilient you are to an unexpected event, please contact me for an asset protection review.