You’re driving down the road and accidentally run a stop sign. But you’re able to react quickly, and the end result is a grazed bumper and an apology. You realize you got lucky.What if you were instead momentarily distracted, driving full-speed into a surgeon’s brand-new BMW, totaling her car and leaving her permanently disabled and unable to continue her career? Your liability could be in the millions. That split-second of reaction time could have a huge negative impact on her life, and yours.What you may not realize is that insurance companies price these incidents at about the same rate when it comes to premium costs. The formula insurance companies use to calculate risk is straightforward. They compute the odds of a particular incident happening and multiply that by the amount they would have to pay if it does.The first scenario is relatively common but also fairly cheap and easy for an insurance company to cover. The second, though significantly more costly, is also much more rare. So for an insurance company, there’s not much difference. But for you? The difference is substantial.When you’re a successful individual, it’s important to have a sturdy safety net to protect your lifestyle. In many cases, this means it makes much more sense to spend your insurance dollars on additional liability coverage instead of a low deductible.

Save money by increasing deductiblesMany successful families with mass-market homeowners and auto insurance policies carry deductibles of $500 or even less. They pay a substantial amount in premiums for these low deductibles, but ironically, when they have a minor fender bender, they won’t file a claim because they’re worried about insurance rates going up.If you’ve got the means to pay for simple repairs out-of-pocket, the amount you’d pay to maintain a low deductible is probably better spent elsewhere. Consider what you could pay for a simple repair without affecting your lifestyle. If you are willing to take on the risk—or self-insure—for smaller incidents, your savings could be significant.For example, the annual premium savings to insure a million-dollar home with a $2,500 deductible versus a $500 deductible can come in at around $900. Are you willing to risk paying an additional $2,000 for a loss to save $900 per year? Let’s do the math. Since it’s typical to file a home claim only once every 21 years, going with the higher deductible would be the better choice in most cases. The total premium savings would come to $18,900 over 21 years, far outweighing the additional $2,000 paid at the time of the one loss. As the table below shows, you would come out ahead after only three years without a loss.

Potential Savings with a $2,500 vs. $500 Deductible

A great use for those savings is to roll them back into your insurance plan by increasing your liability coverage. The coverage limits for homeowners and auto policies are normally up to $300,000, and rarely more than $500,000. In our litigious society, this could be a drop in the bucket if you have significant assets. Jury awards and settlements can reach into the tens of millions of dollars.To be fully protected, you should also include the following when setting a coverage limit: your equity in real-estate holdings; the value of your personal possessions, savings and investments; and your future income stream.Surprisingly, the cost per million dollars in coverage can amount to only a few hundred dollars annually. Insurance actually gets less expensive the more you buy. And the law of averages says you will never need $50 million in insurance, but if you do, it is available through Kelly Klee.

Typical Cost of Umbrella Liability Coverage

For successful families, one of the wisest insurance moves you can make is to increase the deductible on your home and auto policies in order to offset the cost of additional umbrella liability. Take the examples above—the $900 annual savings from a higher deductible could purchase nearly $10 million more in liability protection. If you can afford to assume the financial responsibility for minor incidents, you can better protect your family from a catastrophic loss, and buy yourself some peace of mind, too.