Insurance can be a very expensive product. When the premium bill comes, it is easy to get into "that won't happen to me" mode and not adequately insure. But a little cost benefit analysis can help you make a rational choice as to what types of coverage you need and what the amounts of those coverages should be.

Liability coverage is both the easiest and hardest coverage to gage. Why? Because what it might have to cover is always unknown. Good liability coverage will pay for whatever injury to other persons and damage to the property of others a court may find you responsible to pay for, AND a good liability policy should also provide for the payment of your legal costs in defending against a claim. The latter can be a significant amount if you become involved in a personal injury or significant property damage claim, even if you are ultimately found not to be liable for damages, and is an important part of any liability coverage policy. It is not unusual for personal injury and wrongful death judgements to exceed $1 million, so this is not coverage to be taken lightly. Liability coverage is often attached to property insurance for assets used in the underlying activity. For instance, your auto policy should provide liability coverage for damage and injury that happens while you are driving your vehicles, and your home owner's or renters policy should provide liability coverage for injuries incurred by others on your residential property. Homeowners policies may or may not cover injury or damages caused by your hobby horses, so be sure to get specific information on this from your insurer, even if you keep your horses at home. If damage done by your horses is not covered, talk to an equine insurer about additional specific coverage. Commercial liability policies cover damage and injury which arises in the course of your business and should be tailored to the nature of your business. The easy part of the liability insurance decision is that everyone needs coverage for the activities in which they are involved. The hard part is how much. It is impossible to predict what might happen to someone else or their property or how great the damage might be. This said, remember that should a judgement against you exceed the amount of your liability insurance coverage, the difference comes out of your personal assets. Make sure you have coverage adequate to protect your assets in case of a large judgement against you. The more you have at stake, the more coverage you should consider.