What is Asset Protection in Insurance?

Asset protection insurance, also known as insurance asset protection, safeguards your wealth in the event of claims from creditors, lawsuits, or court settlements.

Beyond foundational liability and property insurance for your home or business, purchasing insurance for asset protection provides an additional shield – preventing or mitigating risks of seizure if you’re sued or subject to a legal judgment. 

Rather than a type of insurance you buy directly through an agent or broker, insurance asset protection refers to what is often a multi-layered strategy of purchasing specialized coverage and separating holdings to ensure comprehensive protection.

Asset protection insurance can cover a wide range of assets, securing your wealth regardless of legal actions taken against you. This coverage typically includes:

• Real Estate: Protects properties such as homes, rental properties, and commercial buildings.
• Investments: Safeguards stocks, bonds, and other investment portfolios.
• Personal Property: Covers valuable items like jewelry, art, and collectibles.
• Business Assets: Ensures business equipment, inventory, and intellectual property are protected.
• Bank Accounts: Shields your savings and checking accounts from creditors.

In this article, we’ll look at a few common ways high-net-worth individuals, business owners, and others strategically protect their assets through insurance. This will include information about forms of excess liability coverage such as umbrella insurance; asset protection trusts; and more.

Who Needs Asset Protection Insurance?

Ensuring you have the proper insurance is crucial for individuals and businesses that face high liability risks, such as doctors, lawyers, and business owners. But asset protection is also an important consideration in your insurance portfolio if you serve on a board, have employees, or own rental properties. 

The need for robust asset protection through insurance arises when you or your business faces legal action. This can range from an employee discrimination suit to a lawsuit for extremely high medical expenses following an at-fault car accident. If you agree to a lawsuit settlement or a court finds you liable for damages – and the result is money owed beyond your insurance coverage – any unprotected assets can be seized, forcibly liquidated, or otherwise taken. 

With proper planning and comprehensive insurance coverage, you can extend asset protection and avoid major financial problems. Let’s look at how asset protection works.

What is Asset Protection in Insurance?

Asset protection insurance provides an additional layer of security beyond your existing insurance policies. A common form of this is umbrella coverage, which extends the liability limits of your primary policies (such as homeowners, general commercial, or auto insurance). 

When a claim (such as a legal judgment after being sued) is made against you, your primary insurance policies are used first. If these policies are insufficient to cover the claim, your umbrella insurance kicks in to cover the remaining amount.

Other insurance to specifically protect assets and function as risk management pertaining to legal actions include: 

• Directors & Officers (D&O) Liability insurance or Management Liability insurance
• Cyber Liability (data breaches, regulatory judgments, and more)
• Employment Practices Liability insurance (claims from employees)

It’s important to note, however, that buying additional policies is not the only – or even the most effective – way for every person to secure assets. Often, insurance is only one of many options or steps. As always, it’s best to consult individually with your insurance broker or agent to evaluate your risks and which assets or situations specifically call for adding insurance. 

In addition, there are some strategic organizational or financial moves you may consider in addition to insurance for asset protection. Next, we’ll look at one of the popular choices: asset protection trusts.

How to Make Your Assets Untouchable

An asset protection trust is an irrevocable trust you can set up to protect assets from creditors, making it the strongest asset protection. These trusts can be domestic (within the U.S.) or offshore (held outside the U.S.). Domestic trusts aren’t allowed in all states, and offshore trusts often cost more to set up.

Asset protection trusts make your assets untouchable. They’re best suited for those with a high net worth or those in professions at increased risk for lawsuits, such as doctors and real estate developers. Your financial advisor may also recommend a trust as an alternative to a prenuptial agreement.

Like other trusts, asset protection trusts remove assets from a grantor’s estate – meaning creditors can’t seize the holding in the event you have outstanding legal judgments. This structure can also help minimize state taxes.

Is Asset Protection Worth It?

In simple terms, all insurance is a form of asset protection. For example, if you hire a roofer and someone on the crew falls – sustaining major injuries and high medical bills – your homeowners insurance gives you a first line of protection if the worker sues you. Instead of losing your house in a lawsuit, your insurance may pay out enough to satisfy the claim. 

Standard auto, commercial, and umbrella coverages function similarly. However, the limits – both in terms of coverage ceilings and coverage exclusions – of standard policies often leave gaps or exposure for some policyholders. 

This is particularly true if you or your business have millions of dollars in assets and/or have a higher risk of being sued for damages due to the nature of your industry, trade, or practice. A series of steps in this case – including forming separate LLCs for business – can help shield your assets in legal proceedings. 

Asset protection insurance covers various legal claims, including personal injury lawsuits, professional malpractice claims, business-related liability claims, and property damage lawsuits. It helps make your assets untouchable in unforeseen circumstances. 

Keep in mind, however, that there is no foolproof way to permanently protect assets if you are involved in crime, such as fraud, or otherwise violate the terms of your coverage. Below, we’ve listed a few common instances where insurance coverage can’t resolve your financial responsibility. 

• Intentional Acts: Claims arising from intentional harm or fraud are not covered by insurance.
• Certain Business Activities: Some business-related liabilities may not be covered without specific endorsements in asset protection in insurance.
• Pre-existing Conditions: Claims related to incidents that occurred before the policy was in effect may be excluded.
• Specific High-Risk Activities: Activities considered extremely high-risk may require additional coverage.

How To Protect Your Assets Through Insurance

Carefully weigh your risks, take stock of your assets, and speak with both an insurance expert and financial advisor to get the best protection for yourself, your family, and your business. 

Generally, asset protection through insurance will combine a set of legal structures as well as policy-based coverage. This often means assembling a trust, in conjunction with a corporate entity, and proper insurance coverage, such as a high-limit umbrella policy alongside lines specific to your needs. 

At Independent Insurance Associates, we can help you fully evaluate your insurance portfolio and identify ways to enhance your protection. From umbrella coverage to mitigate legal and financial risks to layering policies like professional liability insurance for diverse business needs, we take the time to understand your specific goals before connecting you with the right coverage. Call or email us today to get started!