An important, but overlooked, part of estate planning is insurance. The goal of estate planning is to preserve your estate and ensure that your loved ones receive your assets when you die. One crucial step you can take is to ensure you have sufficient insurance to protect your assets in the event of an unexpected event.

Consider these two very different scenarios, both of which lead to the same conclusion:

Scenario One: You cause an automobile accident injuring another party. That party has a compound fracture of his leg and is complaining of chest pains at the accident scene. He is life flighted to a local hospital and undergoes emergency surgery to set the compound fracture. Multiple tests are performed to ensure he does not have any significant heart issue. The injured person is admitted to the hospital and is discharged two days later. He then sues you. His life flight bill is $60,000, the hospital charge for the surgery and all testing performed is $36,000 and the physician charge is $7,500. Total medical expenses are $103,500.00. You are sued for $500,000.00.

Scenario Two: You are involved in an automobile accident caused by a drunk driver. You are admitted to the hospital with the same injuries and same medical expenses as set forth above. Your total medical bills are $103,500.00 and the out-of-pocket portion you have to pay, after your health insurance pays its part, is $32,000.00. You also miss two weeks of work and lose $1,700.00 in wages. You speak to an attorney who indicates that your case may have a value of between $175,000 and $300,000. However, the at fault driver has no insurance.

Either of these scenarios can substantially impact your assets if you do not have sufficient insurance. In scenario one, your insurance is what is available to pay any financial obligation you owe due to your actions. In scenario two your insurance (specifically the type of insurance called uninsured or underinsured insurance) is what is available to pay you for your injuries as the at-fault party has no insurance.

Given the cost of medical care and the risk that exists that either you are obligated for damage to someone else or your assets are diminished due to an injury to you caused by someone else, it is an important part of estate planning to have substantial vehicle insurance. In Tennessee, the minimum insurance required to be provided if you operate a vehicle, is a $25,000 policy (technically it is a $25,000 / $50,00 policy which provides up to $25,000 per injured party and up to a total of $50,000 per accident). However, having such a limited amount of insurance leaves you open to a substantial risk of losing your assets.

We recommend you have as much insurance as you can afford. If you can afford a $250,000 / $500,000 policy or more, we strongly recommend that you have this level of coverage. In most cases, the cost for increasing your insurance limits is quite reasonable. While this is not traditionally what people think of when they think of estate planning, it is a crucial part of a plan to protect your assets.