The Secret of Liability Coverage Insurance Explained

Ok, let’s start with the BIGGIE. Liability insurance. For those of you who aren’t familiar with the term LIABILITY, it basically means WHATEVER YOU ARE RESPONSIBLE FOR. In other words, if you hit someone else, it is the LIABILITY portion of your policy that will pay for the other person’s damage and/or medical expenses. If THEY are at fault, it will be THEIR policy that pays for YOURS. The liability portion of your auto insurance policy usually looks something like this: 100/300/50. Each number reflects a MAXIMUM amount of coverage for BODILY INJURY and PROPERTY DAMAGE.


In this example, you would have $100,000 to pay for the medical expenses for EACH PERSON involved in an accident you are at fault  for, up to a maximum of $300,000, and you would have $50,000 to pay for the actual property damage you caused. (i.e. to fix the car, your neighbor’s fence, the pizza parlor you ran  into…you get the idea.)

Let’s look at a scenario so you can see what this coverage REALLY means. Ok, let’s say you are at fault for an accident…maybe your car slid on some ice…and you run into and total the other vehicle. The car, much to your dismay, was a brand new Lexus worth about $70,000, and there were 4 people in the car who were all injured, and their medical bills totaled $400,000.

Now, let’s say you have the coverage we mentioned before, 100/300/50. In this scenario, your coverage limits  would have been exhausted, and you would have had to pay $120,000 out of pocket. (your maximum of $300,000 for Bodily injury was exhausted, and their was still  $100,000 owed, and your Property Damage coverage was exhausted and there was still $20,000 owed.) Not a pretty picture, huh?


Although this scenario might be a little rare, it DOES happen, and considering that there are MORE and MORE people on the road EVERY day, your chances for having such an accident increase EVERY DAY. That then begs the question, “How high SHOULD my liability limits be?” Let’s get one thing straight here folks…”THIS IS NOT THE COVERAGE YOU SHOULD TRY TO SAVE MONEY ON!!!” Repeat that phrase…learn it, know it, LIVE it.

Too many people have liability limits that are MUCH lower than they need. One reason is that people will find out what the state MINIMUM is and pick that coverage as their liability limits. This is a VERY dangerous idea. States have to pick minimums for you to carry, and most states require minimums that are too low to be effective in a lot of car crash scenarios. For instance, some states require minimums of 20/40/10. Ok, let’s say you are at fault for an accident, no one is hurt, but the other car is totaled. How many cars on the road do you think are worth more than $10,000? That’s right A LOT.

There really is no reason to carry low liability limits, EVER. Regardless if your car is old, or new, or expensive, or paid off…your damage to another. Be it another car or the person driving it, your car is dangerous, and in order to protect yourself, your assets, and perhaps your future, make sure your liability limits are HIGH. One thing that people don’t even realize is that raising your liability limits is usually not even that expensive. Go ahead and call your insurance company and get a quote for the next level up from the one you are at now.

Now, get one for the next 2 levels up, and so on. Pick the highest level that you really can afford. It makes a lot more sense to pay a little more NOW, than a WHOLE LOT more later…Medical expenses are going up, car repair prices are going up, cost of cars is going up…shouldn’t your liability coverage reflect that? Yes, it should. One more quick thought…and I don’t meant to be so blunt, but if you are worried about affording to pay an extra $100 a year because I am advising you raise your liability limits, how would you feel about getting into an accident and having to afford $200,000 because you neglected to do it? By investing an extra $100 a year or so in your policy, you may be saving yourself HUNDREDS of THOUSANDS of dollars.

photo credits flickr [Simple Insomnia] [ timbrauhn]

This entry was posted on Thursday, July 23rd, 2009 at 9:49 pm and is filed under article. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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