What is a 'Dangerous Asset'

A dangerous asset is a piece of property or investment which poses a risk of liability to its owner. The term generally applies to a physical asset rather than a security. Such an asset might be a building, a vehicle or equipment.

BREAKING DOWN 'Dangerous Asset'

A dangerous asset poses a threat to the physical safety of another unrelated individual, thus creating a potential liability to the asset’s owner. For instance, a bicycle rental firm that owns a bicycle with a wobbly tire and rents it to a customer is exposing itself to the risk that the customer has an accident caused by that defective equipment. Assuming that this causation can be proved, the rental company will likely be held liable for the renter’s injuries and will owe damages to the injured party.

The wobbly tire in the above example may appear to be a dangerous asset that the company could address with improved equipment checks. In fact, the dangerous asset is the bicycle itself. A faulty asset creates risk that can be minimized through increased diligence and devotion of resources to maintenance. There is also an element of randomness to the risk it poses. This element of chance is sometimes referred to as an act of god.

A dangerous asset, on the other hand, is inherently dangerous even when working as originally intended. A rented bicycle, a chair lift or a heavy duty piece of construction equipment could fall into this category. Residential or commercial real estate are broad categories but anything falling under those terms is generally considered a dangerous asset.

Dangerous Assets and Liability Insurance

Due to the increased risk of liability that they pose, dangerous assets require careful review and specialized insurance coverage. Businesses that are exposed to dangerous asset risk need to purchase protection for their other assets that non-dangerous holdings such as securities or cash do not warrant. The strongest of such protections is an overseas asset protection trust. This trust is held by an international institution without offices in the insured company’s jurisdiction or residence. A strong asset protection trust not only protects the firm’s possessions, it discourages lawsuits in the first place.

Another common measure taken to protect owners of dangerous assets is the establishment of a separate entity such as a limited liability corporation (LLC) to own those dangerous items. Doing so protects the original purchasing entity from liability, since the asset in question is technically owned by the LLC.

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