I’m protected by the
Homestead Act ... I don’t NEED liability insurance …
By Irene Morrill, CPCU, CIC, ARM, CRM,
LIA, CPIW Vice President of Technical Affairs
(April 2006)
That is one of the most FOOLISH statements that
I have ever heard … and it is SO UNTRUE …
Don’t get me wrong. I think protecting one’s
residence by filing under the Homestead Act found in MGL 188
is a smart thing to do … but it is not done in LIEU of
liability insurance … it’s done in CONJUNCTION with
proper liability insurance.
Brief overview of the Homestead
Act ...
How broad is the protection?
Currently homestead protection is a maximum of
$500,000 for one’s PRINCIPAL residence only. Regardless
of the numbers of owners of the property, the “estate of
homestead” is only filed in ONE name for the benefit of
the entire family.
Should the “filer” pass away, the homestead
protection remains for the spouse until he/she remarries and
for unmarried children until eighteen.
If the owners are 62 or older or disabled, then
the law allows each owner to file for an estate of homestead
up to $500,000. To be considered disabled you must meet the legal
definition in 42 USC 1382 (a) (3) (A) and (C).
The general purpose of the “estate of homestead” is
to protect oneself from unsecured creditors.
Filing for an “estate of homestead” exempts
your principal residence to the tune of $500,000 from MOST attachments
or debts. However, the Homestead Act does NOT exempt you from
such things as:
- sale of property to pay taxes (federal, state,
local)
- debts incurred PRIOR to creation of “estate
of homestead” (sort of similar to NO prior acts coverage!)
- mortgage debt ON the home
- child support or alimony
Where do you file an “estate of homestead?”
You file it in the county where your principal
residence is located. The Registry of Deeds for the Commonwealth
of Massachusetts Website will provide you with the contact information
for your county. The MA Registry of Deeds Website address is: http://www.sec.state.ma.us/rod/rodhom/homidx.htm.
The form will most probably be available online at the county’s
website address. The filing fee is a mere $35.00. The form must
be notarized, so there might be a modest fee for this procedure.
Why should I still purchase adequate liability
limits on my auto and homeowners policy?
The MA auto policy and the defense issue …
If you only buy 20/40/5 (state minimum limits),
but cause SERIOUS injury to someone, what will your MAP do? Suppose
the plaintiff is suing you for $1,000,000, and the request is
not unreasonable based on his/her injuries. The accident is clearly
your fault. Will your company choose to spend thousands of dollars
on defense for you in an attempt to settle for a lesser amount
than the million? In the long run, the carrier won’t pay
out more than the $20,000 per person limit, so what will the
carrier gain by offering a long involved and costly defense?
The duty to defend language in the MAP is “interesting” …
We also have a duty to defend any such lawsuit,
even if it is without merit, but our duty to defend ends when
we tender, or pay to any claimant or to a court of competent
jurisdiction, with the court’s permission, the maximum
limits of coverage under this policy. We may end our duty todefend
at any time during the course of the lawsuit, by tendering,
or paying the maximum limits of coverage under the policy,
without the need for a judgment or settlement of the lawsuit
or a release by the claimant.
The MAP language allows the carrier to pay out
and get out … now ... you are going to have to come up
with EXTRA money … to pay for a lawyer to help get you
out of the lawsuit that you got yourself into!!!
Massachusetts Uninsured and Underinsured Motorists
Coverage …
Remember … one CANNOT buy a higher limit
of insurance for UM or UIM than is purchased for Optional Bodily
Injury Part 5. There are a certain number of individuals out
there who FAIL TO PAY their auto insurance premiums. If they
are the ones that cause the accident where you are seriously
injured … what will YOU do? How will you pay YOUR bills.
It is very likely that many of these people will NOT have any “assets” to
attach or wages to garnish.
Purchasing high Uninsured Motorists coverage limits
will allow YOU to receive compensation from your OWN carrier.
Let your carrier worry about getting the money back!
Also, in Massachusetts, many people either make
poor insurance buying decisions or just can’t afford to
purchase much insurance. They have met state law requirements … but
what good is $20,000 when YOU are seriously injured. Buying high
Underinsured Motorist limits can provide you with $$$ to pay
your mortgage and other monetary obligations.
In order to purchase high UM and UIM limits …we
must FIRST have the high BI limit!
MA Auto Property Damage Liability Coverage Part
4 …
Is inexpensive when purchasing limits HIGHER than
state minimum. It‘s the first $5,000 that costs the most.
Then the premium jump to $10,000 is somewhat hefty, but after
that coverage is cheap. We ALL know that the average cost of
a newer vehicle is well over $5,000 to $10,000! And, we all know
that if an insurance company pays a collision loss to its customer,
it WILL subrogate against the “guilty party.” Purchasing
adequate Property Damage Liability limits is MUCH cheaper than
having your wages attached. The additional premium will be portioned
over your normal automobile payment plan.
Homeowners Liability Insurance …
Is so INEXPENSIVE … it is ridiculous! Increasing
one’s Homeowners Liability limit from the base of $100,000
to $500,000 is usually less than $50. What a deal!
Judgments rendered must be paid … whether
or not by insurance …
Filing an estate of homestead does NOT keep you
from being sued. If you negligently cause injury to another person
or their property, then a court of law can find against you.
A huge judgment could be rendered against you. Granted, the Homestead
Act could protect your principal residence … but not any
SECONDARY residence. Also, what about your savings account?????
Or, the ATVs, Mercedes, sail or motor boats. You can kiss them
goodbye!
Also, your wages could be GARNISHED (attached)!
MGL 246 describes how property, cash and WAGES can be attached.
MGL 246 s.28 only protects (exempts) $125.00 of your wages from
attachment. WOW!!! According to MGL 246 s.28A a whopping $500
of your savings accounts are exempt … that means any more
than that IS “attachable.” Oh boy!!!
Could an outstanding judgment that attaches
your pay …
Affect your ability to
- Acquire a second home
- Send your kids to the “best” colleges
- Purchase that fancy car
- Go on vacations
- Go out to eat
- Or otherwise affect your lifestyle or desired
standard of living?
According to MGL 260 s. 20 a money judgment entered
in the State of Massachusetts is generally enforceable for a
period of 20 years. That’s a LONG, LONG time … to
try to put off your earning power to avoid your judgment obligations!
Fine … then I’ll declare bankruptcy …
Well, from what I read of the bankruptcy laws,
that unto itself is another can of worms. Chapter 7 bankruptcy
is an “asset liquidation proceeding.” A Homestead
Declaration will not exempt the home from liquidation, but will
allow the individual to keep a “greater portion of the
proceeds” from a liquidation sale.
In a chapter 13 bankruptcy a Homestead Declaration
allows you to retain the home, but you will be required to repay “some
or all of the unsecured debt over a 3 to 5 year period.”
If one is really contemplating bankruptcy, then
Consumer Credit Counseling Service of Southern New England should
be contacted at 1-800-208-2227.
Bankruptcy stays on your record for 10 years. We
ALL know that a bankruptcy in your credit history will “adversely
affect” your ability to buy insurance in the standard voluntary
market!
I think purchasing insurance is WAY EASIER than
filing bankruptcy … and CHEAPER, too!
Massachusetts Registry of Deeds Website information …
Cautions us NOT to use the Homestead Act in lieu
of insurance … but in conjunction with it.
This is excellent advice … buy adequate insurance
and then utilize the Homestead Act as added protection.
I truly believe … ”there ain’t
NOTHING like having your OWN insurance policy!”
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