The Value of Adequate Liability Auto Insurance Coverage

Virtually every state mandates its own minimum liability vehicle insurance coverage requirements. These minimums are set to ensure that drivers have some level of financial provisions in case they cause accidents and have to pay for third party injuries and damages. However, it’s important to ask yourself whether the state minimum liability car insurance coverage is enough to protect your assets and provide adequate coverage in the event of a serious accident. Let’s explore why you may need higher liability auto insurance than the state minimum and the value of increasing coverage limits.

What is Liability Car Insurance?

Liability automobile insurance is designed to cover the costs of injuries or property damage you cause to others in an accident. It consists of two main components: bodily injury (BI) and property damage (PD). BI covers the medical expenses, lost wages, and other associated costs of individuals injured in an accident where you are at fault. PD covers the repair or replacement costs of the other party’s vehicle or property.

State Minimum Liability Coverage Requirements

Each state has its own minimum liability vehicle insurance coverage requirements, which are typically expressed as three numbers. For example, a common requirement may be 25/50/20, which means you must have at least $25,000 in BI liability coverage per person, $50,000 per accident, and $20,000 in PD coverage per accident. These limits may vary significantly from state to state, with some states requiring higher minimum coverage than others.

Why State Minimums May Not Be Enough

According to the Insurance Information Institute (III) reports, average bodily injury liability claims were $22,734 and property damage $5,314 in 2021. This may suggest that most accidents you may cause may be covered by even the minimum state required liability coverage. Furthermore, this basic coverage keeps you legally compliant.

Nevertheless, motorists should keep in mind that the average is a round up number that includes very small and very large claims. That is why the average accident costs falling under the minimum liability auto insurance coverage required by most states may not offer comfort or provide adequate protection in a serious accident. Consider the following scenarios:

  1. Severe injuries and medical expenses: Medical costs can skyrocket in the event of a serious accident. If the injuries you cause exceed the state minimum coverage limits, you could be personally responsible for the remaining costs. Higher liability coverage can help protect your assets from being seized or wages being garnished to cover these costs.
  2. Property damage to high-value vehicles: State minimum PD liability coverage may be insufficient to cover the costs of repairing or replacing high-value vehicles. If you cause an accident involving an expensive car, you may end up paying out-of-pocket for the excess expenses beyond your liability vehicle insurance coverage limits.
  3. Lawsuits and legal fees: In the event of a severe accident, there is a higher likelihood of lawsuits being filed against you. Legal fees can quickly accumulate, even if you are not found at fault. Higher liability coverage can help cover these costs and provide you with extended legal representation.
  4. Increased financial protection: Consider your personal financial situation and assets. If you have significant savings, a home, or other valuable assets, it is important to consider higher liability car insurance coverage to protect them in case of an accident.

Benefits of Higher Liability Car Insurance

Opting for higher liability automobile insurance than the state minimum can offer several advantages, including:

  1. Greater financial protection: Additional coverage limits provide increased protection for your personal assets and savings. If you are found liable for significant damages, having higher liability coverage can prevent financial ruin.
  2. Extra comfort: Knowing that you have more extensive coverage can alleviate stress and provide peace of mind while driving. You can focus on the road without worrying about potential financial hardships resulting from an accident.
  3. Enhanced Uninsured Motorist Coverage (UMC): In most states you can buy (UMC) and in a few states this coverage is mandatory. Typically, UMC can only be purchased up to the limits of your liability coverage. This supplementary coverage serves to protect you in the event of a driver who has insufficient or no insurance causing you injuries and damages. It acts as a safeguard, ensuring that you are financially protected in such circumstances.

Raising Liability Coverage Limits May Not Cost As Much

As indicated above, the average BI and PD claims are under the basic liability coverage limits in most states. Insurers are well aware of the fact that most of the potential claims will fall within the minimum coverage and therefore they don’t take a big risk when motorists increase their liability coverage limits. The chance of an accident with substantial losses is low and if enough people increase their liability coverage limits the insurer will have enough reserves to meet them even if they charge only slightly more for increased coverage.

According to this article, the average annual rate for state minimum liability-only car insurance coverage is $511 and for an increased coverage of 50/100/50 is $637. We should remember that minimum required liability coverage limits are in the 25/50/25 level on average in the US. So, doubling your liability coverage only increase your premium by 25%.

Looking at the average liability-only vehicle insurance costs, by paying $126 more a year on average you can have tremendous comfort that the chances of everyone you caused injuries and damages being fully compensated increased two-folds. Additionally, the risks of you paying any damages out of pocket is reduced substantially. This figure may be more or less depending on your state.

Most experts, including the above article suggest that people with average assets like a home and a car and incomes should increase their auto insurance liability coverage limits to 100/300/100 levels to safeguard their assets and income. Always keep in mind that having adequate liability coverage not only covers the costs of injuries and damages you may cause to third parties, alleviating your conscience, but also safeguards your assets.