5 Financial Mistakes Women Make

Teaching Your Child about Money

Paying for Child Care

For many parents, returning to work after a child birth is stressful. Ultimately when you begin looking for child care, concerns revolve around how to locate affordable, quality care. You question whether you are making the right choice, whether you can actually afford to stay at home with your child, and are taking a leap of faith in placing your child’s welfare in the hands of strangers.

How Much Does Child Care Cost?
As we talk to our clients, we hear a wide range of prices. But one thing remains constant: The cost of child care will depend upon where you live, how old your children are, how many children you have in day care, and what type of child care you choose.

You’ll Likely Pay Different Amounts for Children of Different Ages
In general, the younger the child, the more you’ll pay for child care. If you’ve been looking for someone to take care of your baby, you’ve probably already experienced sticker shock. The law in many states mandates that child-care centers have one adult for every four infants. This means that the centers must hire more people (or accept fewer infants for care) and this increases the price of care. In addition, caring for infants is labor-intensive, so if you hire a nanny, you may need to pay him or her more to care for an infant.

You’ll Pay more for Two Children, but Not Twice as Much
You’ll pay more for child care for two children, but not usually twice as much. Many child-care centers (and family day-care providers) will give you a sibling discount for the second child if you enroll both of them. If you hire a nanny, he or she may charge you the same amount for one child as for two. In fact, some families opt to hire a nanny after their second or third child is born because it’s suddenly cost-effective to do so; other families (such as neighbors) share a nanny and split the cost.

You’ll Pay More for Certain Types of Care
In general, child care provided by a nanny is more expensive than child care provided by a day-care center. Child care provided by a day-care center is usually more expensive than family day care. However, you may find that this really isn’t so in your area, because costs vary widely from region to region. In addition, some day-care costs may be subsidized by the government or by your employer, and some providers simply charge less than others. There’s not necessarily a correlation between price and quality, either. For instance, a day-care center may charge more because it has a lot more overhead than a family day-care provider, but the family day-care provider may provide care that is just as good as (and sometimes better than) the care at the child-care center.

The Total Cost of Child Care
Many parents who work and pay for child care wonder if it’s worth it to work at all, because child-care costs eat up a big portion of their paycheck (particularly if they have more than one child). This is particularly true in families where the second wage earner’s salary is relatively low. However, many parents have no choice. Single parents, for instance, usually must work, and both parents in a two-parent family often have to work to make ends meet. If you do have a choice, though, you may want to consider what child care actually costs you. For instance, you must pay:

• The monthly check to your provider
• The cost in transportation to and from the provider
• Incidental costs of using a child-care center (such as food and sick child-care costs)
• If you’ve hired a nanny, the legal costs involved and the extra tax obligations; see the section on in-home care for these costs
• The costs of going to work: transportation, clothes, incidentals
• If you’ve hired a nanny, the costs of their upkeep in your home

Example(s): Teresa went back to work after the birth of her twins. Her monthly paycheck was $2,250, and she paid her child-care provider $900 per month for day care for both children. In addition, she had to buy a used car to get back and forth from work every day and paid $200 a month for her car payment, gas, and insurance. She also spent $75 a month on clothing and another $75 a month on lunches and coffee. So, after considering the total cost of working, Teresa was keeping only $1,000, or 44 percent of her take-home pay.

The Benefits of Working
For you as the parent, the satisfaction and commitment you feel to your job may make working worth the cost, even if you barely make a profit. If you’ve spent years preparing to be a research physicist, you may not want to give up your lab and your tenure to care for your child on a full-time basis. You may value your career advancement at the law firm and expect that dropping out for a three- or four-year period will hamper your chances to make partner. Most important, your job may be so exciting and stimulating that you feel dissatisfied when you’re not working.

Financial Aid from the Government and Your Employer
Are you eligible for government-subsidized child care? The 1997 Welfare Reform Act shifted most of the distribution of federal child-care dollars to state agencies, so you’ll have to check with your own state to see if you can qualify.

If you meet eligibility requirements, another way the government helps you defray the cost of child care is through the child-and dependent-care tax credit, which reduces your total tax liability by allowing you to take a credit for part of your child-care expenses. Your employer may help you out with child care, too, either by sponsoring a child-care program or by allowing you to contribute pretax dollars to a dependent-care account to fund some of your child-care expenses.

Tip: If you exclude contributions to a dependent-care account from your income, then you cannot include the excluded benefits in your expenses for purposes of calculating the credit. In addition, the excluded benefits may also reduce or eliminate the amount of credit for which you qualify.

Alternative Work Schedules May Reduce Child-Care Costs
You might be able to reduce the size of the check that you write to your child-care provider by changing your work schedule. If you can devise a way to work different hours, you may be able to share child care with another adult so your dollar outlay is lower. Here are scheduling options you can pass by the boss:
Parental and maternity leave

Both Dad and Mom may be eligible for family leave after their child is born. This means that you get some time off to recover from the birth and to care for your new baby. Some companies give as much as three months of this family leave at full pay, and then another three months at half pay, although this is relatively rare. If your company doesn’t offer paid family leave, you may be able to take up to 12 weeks of unpaid leave after your child is born (or after you adopt a child) under the Family and Medical Leave Act of 1993. Check with your employer.

Flex Time
Flex time lets you change your arrival and departure times at the office. As long as you’re on the site during
the core hours, your employer may let you come into work earlier or later than would normally be required, as long as the total number of hours you spend at work remains the same. Flex-time arrangements are becoming increasingly common in areas where traffic tie-ups are common and in industries where attracting and retaining good employees is a top priority.
Flex place

Flex place is telecommuting, or doing your job from home using your computer, your phone, and your fax machine. Everyone flirts with telecommuting whenever a blizzard rolls in, but you can use the system to stay home with your children on a more regular basis. Of course, if your children want to sit on your lap while you’re typing, you may not work very efficiently. But you may be able to minimize distractions by working during their nap time, after they’re in bed, or before they get up. If all else fails, you may be able to hire the teenager across the street to entertain them after school, or you may be able to put them in part-time day care.

Job Sharing
If you job share, you and at least one other person share the duties of one full-time job. You’re basically working part-time, but job sharing may still give you insurance benefits. You’ll also be able to keep up with the developments in your field and enjoy the stimulation of the workplace without going in to the office every day. Job sharing requires coordination between you and your partner, and the company has to approve of the idea. But it will also make it much easier for you if your child gets the flu.
Compressed work week

Some parents like to compress their work week by working 10 hours a day for four days and having the fifth day off. You’re still putting in your 40-hour week and earning 40 hours of pay, but you have one day off. If you can work it out with your employer and your child-care provider, you’ll save on child care and be able to handle your personal business as well. This kind of schedule is especially helpful if you commute a long distance to work and that time is built into your child-care costs.

Part-Time Employment
While your child is in diapers, you may decide to opt for part-time employment. You’ll make a part-time check and hand much of it to your provider, but you’ll stay in the game and keep the stimulation of the workplace.
Voluntary reduced work time

If child care is too expensive or you’re eager to stay home with your child, ask your boss about voluntarily reducing your work time. If you work more than 50 percent of your job for at least a year, you may be able to keep your insurance benefits and seniority and still stay home with your child part-time. These arrangements may not work out on a permanent basis, especially if your company really must have an employee around full-time to get the job done, but they allow you to make an easier transition back to work after your child is born.

Other Ways to Reduce Child-Care Costs
Probably the easiest way to lower your child-care costs is to find a less-expensive provider. If your child is already spending several hours a day in a preschool setting, you may be able to combine this care with a home provider and not use a nanny. If the private day-care center is too expensive, check on family day care.

Is There a Relative or Close Friend Who Will Watch Your Child?
If it takes a village to raise a child, where are the villagers who are eager to take care of your child so that you can go to the office? Sometimes you’ll find a grandmother, aunt, or friend who is thrilled to take care of your baby. This usually is the cheapest child care around, but it has other, more implicit costs. First of all, Grandma has already raised one family. Consider the possibility that she may be more eager to work in her garden than watch your child all day. And what if your child-rearing philosophies don’t match? How will you negotiate your differences?
Share care with a neighbor or friend

You and your close friend or neighbor may be able to hire one child-care provider and share him or her. This means that your neighbor’s child is always in “child care” at your house or your child goes to your neighbor’s house for child care. The caregiver stays the same, but the children either move between the two houses or use one. This arrangement can ensure that both your and your neighbor’s child will get lots of attention, but the home base of your “center” may also get lots of wear and tear. You also need to be sure that you agree on your child-raising philosophy.

If Your Child is in a Child-Care Center, See if You Can Trade Time for Dollars
You may be able to work early or late hours in the center to save some money on your child’s tuition. Especially in community centers, these arrangements are possible. The center needs parental help to meet its ratios and keep its programs running, and you get to save a few dollars a week in child-care costs by giving them time instead of cash.

Try a Swing Shift with Another Adult
If you and your child’s other parent work different hours, you may be able to adjust your schedules so your child never goes to day care. However, using a swing shift means you and your partner will rarely see each other, since you’re always working and sleeping different shifts. Nevertheless, this sometimes works well when both parents have jobs with flexible schedules.

Uncle Sam’s Solution to the Mortgage Crisis?

The Mortgage Forgiveness Debt Relief Act of 2007 (the Act) was passed by Congress on December 18, 2007, and was signed into law by President Bush on December 20, 2007. The primary objective of this new law is to help beleaguered homeowners avoid foreclosure by eliminating the adverse federal tax consequences associated with debt forgiveness. The Act also extends the deduction for mortgage insurance premiums through 2010, expands the time period for a surviving spouse to use the higher home sale exclusion, and excludes from income certain state and local tax breaks given to volunteer emergency responders.

Foreclosure Relief
Generally, amounts of a debtor that are discharged are included in gross income. The Act generally allows taxpayers to exclude up to $2 million ($1 million if married filing separately) of mortgage debt forgiveness on their principal residence.

• Principal residence indebtedness includes indebtedness (for first, second, and home equity loans) that is incurred in the acquisition, construction, or substantial improvement of an individual’s principal residence and that is secured by the residence. It includes refinancing of debt to the extent the amount of the refinancing doesn’t exceed the amount of the refinanced indebtedness.
• The basis of the taxpayer’s principal residence is reduced by the excluded amount, but not below zero.
• The exclusion doesn’t apply to the discharge if the discharge is on account of services performed for the lender, or any other factor not directly related to a decline in the value of the residence or to the taxpayer’s financial condition. The exclusion also doesn’t apply to a taxpayer in a Title 11 bankruptcy.
• This provision is effective for indebtedness discharged on or after January 1, 2007 and before January 1, 2010.

Extension of Deduction for Mortgage Insurance Premiums Paid
Premiums paid or accrued by a taxpayer during 2007 for qualified mortgage insurance in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer are treated as deductible qualified residence interest (subject to a phase-out based on the taxpayer’s AGI). The Act extends the rules treating qualified mortgage insurance premiums as deductible qualified residence interest for three years.

• This provision is effective for amounts that: (1) are paid or accrued after December 31, 2007 and before January 1, 2011; (2) aren’t properly allocable to any period after December 31, 2010; and (3) are paid or accrued with respect to a mortgage insurance contract issued after December 31, 2006.

Modification of Exclusion of Gain on Sale of Principal Residence
A qualifying taxpayer may exclude up to $250,000 ($500,000 for joint return filers) of gain from the sale or exchange of property that the taxpayer has owned and used as his or her principal residence. Married taxpayers filing jointly for the year of sale may exclude up to $500,000 of gain if: (1) either spouse owned the home for at least 2 of the 5 years before the sale, (2) both spouses used the home as a principal residence for at least 2 of the 5 years before the sale, and (3) neither spouse is ineligible for the full exclusion because of the once-every-2-year limit on the exclusion.

• Prior to the Act, the maximum $500,000 exclusion was available only if a husband and wife filed a joint return for the year of sale. If the home was sold in a year after the year of a spouse’s death, the surviving spouse could only get a maximum exclusion of $250,000.
• The Act allows surviving single spouses to qualify for the maximum $500,000 exclusion if the sale occurs not later than 2 years after their spouse’s death and the requirements for the $500,000 exclusion were met immediately before the spouse’s death.
• This provision is effective for sales and exchanges after December 31, 2007.

New Exclusion for Volunteer Emergency Responders
Generally, reductions or rebates of property taxes by state or local governments on account of services performed by members of qualified volunteer emergency response organizations are taxable income to the volunteers.

• The Act provides an exclusion from gross income to members of qualified volunteer emergency response organizations for:
  1. any “qualified state or local tax benefit”; and
  2. any “qualified payment”
• A “qualified state or local tax benefit” is any reduction or rebate of state or local income, real property, or personal property taxes on account of services performed by individuals as members of a qualified volunteer emergency response organization. To avoid a double tax benefit, the amount of state or local taxes taken into account by a taxpayer in determining his deduction for taxes is reduced by the amount of any qualified state or local tax benefit.
• A “qualified payment” is a payment that is provided by a state or political subdivision on account of the performance of services as a member of a “qualified volunteer emergency response organization”. The amount of these payments is limited to $30 multiplied by the number of months during the year that the taxpayer performs such service (therefore, the maximum exclusion in a given year is $360 ($30 x 12 months)).
• A “qualified volunteer emergency response organization” is any volunteer organization which is: (1) organized and operated to provide firefighting or emergency medical services for persons in the state or its political subdivision; and (2) required, by written agreement, by the state or political subdivision to furnish firefighting or emergency medical services in the state or political subdivision.
• This provision is effective for tax years beginning after December 31, 2007 and before January 1, 2011.

Year-End Gifting Tax Tips

As the holiday season and the close of the year quickly approach, you may be planning to make gifts to family, friends, and charities. You can be generous to yourself, too, by making those gifts in a way that maximizes your tax benefits. Here are some tips for tax-wise giving.

Giving to Family and Friends
Gifts to family and friends may be subject to federal gift tax (and perhaps state gift tax), and gifts to grandchildren may also be subject to generation-skipping transfer tax (GSTT). However:

• Gifts to spouses are gift tax free.
• Currently, you can give tax free up to $12,000 per recipient ($24,000 if the gift is from both you and your spouse) under the annual gift tax exclusion. Gifts over that amount are tax free to the extent of your $1 million lifetime gift tax exemption ($2 million lifetime GSTT exemption).
• If you fund a 529 plan for your child or grandchild, you can contribute up to five years’ worth of gifts at once; that’s $60,000 per child or $120,000 if you and your spouse make the gift.
• You can make unlimited tax-free gifts if you directly pay medical bills or college tuition on behalf of a recipient.

Giving to Charity
Donations to charity are completely gift tax free and are also generally deductible for income tax purposes, subject to the usual limitations. However:

• Only donations to “qualified” organizations are tax deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions, or you can ask the organization for a copy of its tax-exempt status determination letter. In addition, churches, synagogues, temples, mosques, and government agencies are eligible to receive deductible donations.
• Avoid giving cash, and keep records (receipts, canceled checks) of all your donations, regardless of the amount. Although the value of your time serving as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) directly related to your volunteer service to a charity are usually deductible.
• You must obtain a “qualified appraisal” for donations of property worth over $5,000 (other than cash and publicly traded securities), and you must attach an appraisal summary (IRS Form 8283) to your tax return.
• Donated clothing and household items must be in good condition. You may claim a deduction of more than $500 for any single item, regardless of its condition, if you include a qualified appraisal with your return.
• For 2007, an IRA owner age 70½ or older can directly transfer income tax free up to $100,000 per year to an eligible charitable organization. You can take advantage of this provision regardless of whether you itemize your deductions.
• Consider donating appreciated securities that you’ve held for more than a year. You’ll generally get a full fair market value deduction and avoid capital gains tax, too.
• Consider grouping donations and making gifts in alternate years to create a larger deduction and opportunity to itemize.

What is Concierge Health Care?

Concierge health care is a primary-care arrangement that requires you, the patient, to pay your physician an annual retainer fee (often over and above your health insurance premiums) in exchange for improved access and services.

Such retainer fees may range from a low of $1,500 to as much as $20,000 per year…the more you pay, the more services you get. In exchange, you receive same- or next-day appointments (with no reception-room waiting), extended office visits, 24/7 telephone and/or e-mail access to your doctor, and an annual intensive physical. For additional fees, higher benefits are also available; this includes house calls, home delivery of prescribed medications, and continuous personalized care. Your primary care doctor may even accompany you to appointments with specialists, and will coordinate your care even during hospital stays, rather than handing you over to the hospital’s staff physicians.

In a concierge health-care plan, your doctor sees fewer patients (the average caseload is 300, compared to 2,500 for doctors in managed-care plans). While some concierge plans don’t accept health insurance, most do. Whenever possible, your doctor will bill your health insurance provider (or Medicare) for payment for services provided.

However, most health insurance plans require participating doctors to accept the plan’s rates as payment in full for the covered services, and Medicare generally prohibits doctors from charging Medicare recipients anything more than what Medicare pays. As a result, concierge health-care providers who participate in Medicare must be careful to charge annual retainer fees only for services health insurance or Medicare won’t normally cover.

While concierge health care obviously has its perks, you should make sure you understand exactly what is covered by the annual retainer fee before you sign up for it.

Give the Gift of Financial Planning

Life’s major decisions have a lasting impact, and important financial concerns are often overlooked when your loved ones are:

• Graduating from college
• Starting a career
• Getting married
• Having a new baby
• Changing jobs
• Nearing retirement

Holiday Differently
Offer your friends and family something more meaningful. Give them peace of mind and the opportunity to secure a positive financial future.

For the recipient, there are no products to buy and no accounts to set up; just the time and expertise of a qualified financial advisor to help steer them onto the correct financial course.

A certificate for one or two hours of time is ideal, and the session can either be tightly focused or a less formal “rapid fire” style Q&A session covering multiple topics.
Our most common concerns with gift recipients often include:

• Debt and credit management and repair
• Allocating retirement plan contributions among investment choices
• Estimating college education expenses, and how to fund them
• Developing a spending and savings plan
• Obtaining a second opinion on an investment portfolio
• Making a pension lump sum decision
• Deciding how much and what type of insurance to buy

Simply Wrap It, and You’re Done
We will mail you a high-quality gift certificate that you can wrap and give to your loved one during the big event. The certificate fits inside of a standard envelope and includes space for your name and a personalized message for the recipient. As a bonus, if you already know what you want to say, just tell us and we’ll happily print the message on the certificate for you.

Contact us to learn more and to purchase gift certificates for your loved ones today.

Organizing Important Records and Documents

A record-keeping system is a systematic approach to retaining and filing documents in a way that makes them easy to find when needed, even if it’s several years later. Record-keeping systems range from simple to elaborate and from basic to comprehensive. The ideal system is designed to fit your personal and family situation and lifestyle.

Good Record Keeping is Important
The most important thing to know about record keeping is that doing it well will save you a lot of time and money during your lifetime. Conversely, poor record keeping is sure to cost you in terms of money, time, and aggravation, perhaps dearly. For instance, assuming that you’ve been generally honest with the IRS, the only reason to fear a tax audit is that your records are incomplete or in disarray. If so, the IRS could find that you owe more tax than you paid. Insurance and legal claims frequently require supporting documents as well.

Record keeping is also important for estate planning purposes. After you pass away, your family and the executor of your estate will be grateful to find your records complete and in a meaningful order.

Decide What Your Record-Keeping System Will Include
The items you decide to retain in your record-keeping system will depend on several factors, including:

• Your personal and family situation
• The nature of your assets and investments
• Your household’s number and type of income sources
• Your tolerance for risk
• The time you’ll realistically devote to keeping records systematically

In addition to financial documents, you’ll probably want your system to retain other types of important documents, such as insurance policies; health and employment records; property titles; certificates of birth, death, and citizenship; and product and service guarantees. Today, it is also common to videotape personal property for potential use as evidence in an insurance claim.

Create a System that Works Best for You
If throwing all your receipts, bills, and paycheck stubs into the proverbial shoe box until tax time is the best you can manage, then it will have to do. However, devising a systematic approach to retaining and filing your important documents will bring rewards you will appreciate in the future. If you can find little time for record keeping, then a simple system may be the answer. On the other hand, a more complex system that retains and files all potentially necessary documents on a weekly or monthly basis assures that when a need arises, you’ll be able to retrieve whatever you need promptly and without fuss. You might view this as pay now or pay later.

Accessibility and Security Should Determine Where You Store Records
It is usually best to store original documents that you must or want to protect from harm in a safety-deposit box, typically rented at your local bank. This provides important protection against fire and theft. Keep a reference copy of the documents in your more readily accessible files and note on them the location of the originals.

Older files that will likely require infrequent access can be stored in any relatively secure place provided that they will not be prone to damage or destruction. Files pertaining to the last 6 to 12 months should be readily accessible.

Caution: Never store your will in a safety-deposit box unless you’ve left a copy elsewhere or you lease the box jointly. Otherwise, the box may be sealed at the time of your death, leaving your spouse or executor searching for another copy.

2007 Year-End Tax Planning Considerations

For the most part, the window of opportunity for 2007 tax year planning closes on December 31. Here are a few points to consider as you contemplate any year-end tax moves and then look forward to the 2008 tax year.

New Zero Percent Tax Rate
Currently, the maximum federal income tax rate for most long-term capital gains and qualifying dividend income is 15%. Individuals in the lowest two tax brackets receive the benefit of an even lower 5% maximum rate. Beginning January 1, 2008, however (and continuing through 2010), the maximum rate drops all the way to zero for individuals in the lowest two tax brackets.

This presents an important planning opportunity. Make year-end gifts (up to $12,000 per individual gift tax free) of appreciated assets to family members currently in the lowest two tax brackets, who would then be able to sell the assets after January 1, 2008 without any resulting federal income tax. There’s one big catch, though: the new “kiddie tax” rules.

New “Kiddie Tax” Rules
Generally, the kiddie tax rules apply when a child has unearned annual income (e.g., interest, investment earnings, taxable gain resulting from the sale of an asset) exceeding $1,700 (in 2007).

In 2007, the kiddie tax rules apply to children under the age of 18. Beginning in 2008, however, the kiddie tax rules apply to children who are under age 19, and to full-time students under age 24. (There’s an exception for any child who earns more than one-half of his or her own support.)

So, if you want to take advantage of the zero tax bracket in 2008 by transferring appreciated assets to a low-tax-bracket family member, make sure the kiddie tax rules won’t apply. Otherwise, the resulting income–at least the portion that exceeds $1,700–will be taxed at your (presumably higher) tax rate, eliminating most or all of any potential tax savings. For the remainder of 2007, though, the old rules apply–a child who will reach age 18 by year end is able to sell appreciated assets and potentially pay tax on any resulting income at the (still low) 5% rate.

AMT Uncertainty
Legislation signed into law in early 2006 brought the most recent in a long series of temporary “fixes” for the alternative minimum tax (AMT), which continues to reach further into the ranks of middle-income families. This temporary fix, in the form of increased AMT exemption amounts, expired at the end of 2006. If Congress doesn’t act, the number of taxpayers subject to AMT is projected to increase from 4.24 million in 2006 to 23.19 million in 2007 (Source: Joint Committee on Taxation, March 5, 2007). Some action regarding the AMT is likely, but the form it will take is uncertain, making it important to stay up to date on any new developments.

Other Important Considerations
Unless there is additional legislative action, 2007 is the last year that a taxpayer age 70½ or older is able to make charitable contributions of up to $100,000 directly from an IRA to a qualified charity.

• 2007 is also the last year for other deductions, including the option to deduct state and local general sales tax (instead of state and local income tax) and the above-the-line deduction for qualified higher education expenses.
• For small businesses, legislation this year increased the Section 179 expensing limits.

Talk to a Professional
A qualified financial professional can explain how these issues, and others, might affect your 2007 tax situation.

Do You Need More Liability Protection?

Liability insurance protects individuals and businesses in the event they’re held financially responsible for injuring someone or causing property damage. You probably already have this important protection, but do you have enough?

Personal Liability Insurance
Despite the common belief that only people with substantial wealth or assets are the targets of lawsuits, that’s not necessarily the case. Accidents can happen anywhere, to anyone, and even people of modest means may be at risk. For example, here are some common situations that might result in a liability claim:

• Your dog escapes from the house and bites a delivery person
• A neighbor’s child is hurt while jumping on your backyard trampoline
• Your vehicle broadsides another, injuring the driver

Unfortunately, if you’re sued, your assets are potentially at stake–your savings, your investments, and in most states, even your home. Even if the claim is eventually proved groundless and you’re not held liable for damages, the cost of mounting a defense can be high.

That’s why personal liability insurance is so important. Not only does it cover any court awards you’re required to pay as a result of damage or injury caused by you, your family members, or your pets, but it also covers your legal bills, up to policy limits.

You Probably Already Have Some Coverage
Homeowners, renters, and auto policies all contain liability coverage, so you may already have a basic layer of protection. However, you may not have enough, especially if you have only the minimum required. For example, liability limits for homeowners insurance generally start at $100,000, while required minimum limits for auto insurance in most states range from $30,000 to $60,000. Often, you’ll need far more liability coverage than this to adequately protect your assets.

Ask an insurance professional to review your liability limits and help you decide how much you need, based on factors such as your age, assets, income, and lifestyle.

If You Need More Coverage
What if you have the highest available coverage limits but you still need an additional layer of protection? Consider purchasing an excess liability policy, also called an umbrella liability policy. Because it offers higher coverage limits (often starting at $1 million) than basic personal liability insurance, an umbrella policy will cover you for larger losses.

You’ll need to have a certain level of underlying liability coverage (generally between $100,000 and $500,000) in order to purchase an umbrella liability policy, because the umbrella coverage kicks in only after you’ve reached the limits of your underlying policy. For example, if you have an auto policy with a liability limit of $300,000 per accident and a $1 million umbrella policy, your auto policy would cover the first $300,000 of a $700,000 claim and your umbrella policy would cover the remaining $400,000.

Business and Professional Liability Insurance
The widely publicized case of a dry-cleaning business that was sued for $54 million over a lost pair of pants illustrates the importance of business liability protection. Although the owners of the business prevailed in the lawsuit and were awarded court costs (not including attorney’s fees), they did not have liability coverage, and they may never recover the tens of thousands of dollars they spent mounting a two-year defense against this lawsuit.

While businesses can’t always prevent such liability claims, they can purchase coverage for the special risks they face. One option is commercial general liability insurance, which is often part of a business owners policy. Business umbrella liability policies that offer higher liability limits are also available.

However, some liability risks are unique to certain businesses or professions, so you may also need specialized coverage. For example, if you work in an occupation that is particularly vulnerable to professional liability (e.g., law, medicine, day care), you may also need a separate professional liability policy, usually called malpractice coverage or errors and omissions coverage. Many other types of specialized liability coverage are also available.

Talk to an insurance professional who can help you determine the types and amounts of liability coverage that are appropriate for your business or profession.

Next Page »