By knowing, following, and implementing these few rules, you will not only properly protect your assets, but you will also avoid the many pitfalls placed in your path by the overpriced asset protection “gurus” and service providers out there who are more interested in your money than your situation. You will have the confidence to say “No” to these people because you will know more than they do.
Insurance Is Never a Complete Asset Protection Strategy
Or: Never let a commissioned salesperson tell you how to protect your assets. At real story events around the country I am always confronted by the person who asserts that his insurance agent has assured him that asset protection is a hoax and that all that is needed is a good insurance policy. I have to laugh because there are so many instances of insurance companies failing to cover real estate investors and others on their coverage policies, that there is a whole area of law named after the situation. It is called “Bad Faith Litigation,” as in the bad faith that occurs when insurance companies say they will cover you, collect your premiums, and then, heaven forbid, a claim arises and they find reasons not to cover you
Never forget that insurance companies have an economic incentive not to cover you. As is clearly obvious, the less they pay out in claims, the more money they make. Also never forget that insurance agents receive a commission on all the policies they sell. So when an insurance agent says that all you need is insurance instead of asset protection, please remember where his incentive lies. It is also important to acknowledge that insurance agents are not licensed to give legal advice. You would have to question the motives of one who would do so.
Insurance is the first line of defense when protecting assets. The proper use of asset protection strategies is this second line of defense.
But to the contrary, I believe that insurance is the first line of defense when protecting assets. Many insurance companies are forthright in their dealings and will honor their coverage commitments. Others, with the help of a legal nudge, will do the right thing. So I always advocate the reasonable use of insurance as a protection strategy. However, because we know that a certain percentage of insurance companies will use exclusions and find reasons not to cover you, you most certainly need another defense mechanism. The proper use of asset protection strategies is this second line of defense. As we will learn in this section, asset protection is not difficult or expensive, but it is required if you are to succeed at building real estate wealth.
Now that we know that insurances alone will not completely protect us, let’s review further ways to not protect your real estate before we get to the promised land of beneficial strategies in later articles.