Liability insurance covers the cost of damage you may do to others if your car is involved in an accident. It’s critical because it not only protects other drivers, passengers, pedestrians, and other innocent parties if you are involved in an accident – it also protects you – against the risk of being forced into bankruptcy because you cause an accident, can’t cover the damage, and you get sued.
This coverage is mandatory for all car owners in all states except New Hampshire and Virginia. But even these state require it under certain conditions.
Every standard car insurance policy includes a liability insurance component. This insurance provides cash to take care of damage to other people’s vehicles and property, as well as to cover their medical bills in the event of injury.
Collision coverage – the coverage that protects you and helps pay to repair or replace your car after an accident – is optional. You can self-insure your own car (as long as you aren’t making payments on it!) But not liability coverage. Liability insurance is mandatory in every state.
But every state imposes a different minimum liability insurance requirement.
And in every case, it isn’t nearly enough.
Crunching the Liability Insurance Numbers
If all you carry is the minimum required by your state, it doesn’t cover much beyond a fender bender. For example, Florida does not require bodily injury coverage at all. And has only a $10,000 minimum for property damage. If you total someone’s new Ford F-150, your insurance company will only cover the first $10,000 of damage, over and above your deductible. You’re on the hook for the rest.
In Massachusetts, the state minimum liability requirement is an absurdly low $5,000!
Here’s why that’s a problem:
Consider a Ford 150 XL model truck. It’s a best-seller, and one of the most popular vehicles on the road. You pass them every day.
The base price for a no-frills 2022 Ford 150 XL model starts at $29.640, Almost three times the liability limit on the state minimum liability requirement in Florida – and in lots of other states.
The Lariat model begins at $45,760 and goes up from there.
If someone is hurt as a result of your driving, they can sue you – and if you only own the minimum required coverage, you are taking on a massive amount of risk. If they win the suit and get a judgment, they can file to garnish your wages, levy your bank account, or put a lien on your house.
Beware the Underinsured Motorist
Incidentally, these are great reasons you should probably consider uninsured/underinsured motorist coverage. Because chances are good someone who hits you won’t have enough insurance themselves.
This is why I recommend not stretching your budget to buy the lowest-deductible you can. Instead, I recommend most people buy a policy with the highest deductible they can comfortably afford. That will lower the base premium on the policy by hundreds of dollars a year, at least. Then take the savings and buy better liability coverage, personal injury coverage, and bodily injury coverage.
I also recommend uninsured/underinsured motorist coverage. Why? Because there are lots of people out there driving around with just the bare state minimum themselves. Uninsured/underinsured motorist coverage kicks in when they cause damage to you, your car, and your driver, and all they have is the state minimum.
And in some states, one out of five drivers on the road is completely uninsured. (Mississippi, with 29% of drivers on the road uninsured, is the worst!)
Uninsured motorist (UM) insurance pays for the following:
- Your medical expenses
- Medical bills for your passengers. (You may have medical insurance. Your passengers might not)
- Lost wages incurred due to the accident. If your injuries are severe, these could be substantial.
- Funeral expenses
- Compensation for pain and suffering
- Damage to your vehicle (depending on state laws)
Normally, you need to buy uninsured motorist insurance in the same amount as your liability insurance. So the more liability insurance you own to protect others, the more uninsured motorist coverage you can qualify for to protect yourself.
This is another reason to own more than the legal minimum of liability insurance: The more liability insurance you purchase to protect others, the more UM you are allowed to protect yourself.
Umbrella Coverage
It’s rare, but some car accidents can result in damages and judgments well out of the ordinary, and beyond the limits even of large liability limits on car insurance policies. If you are at fault for an accident that results in death or permanent disability, you could be faced with a judgment or settlement amount of hundreds of thousands of dollars.
This is where it’s useful to have “umbrella” insurance in place. Umbrella coverage only kicks in when the limits of other insurance coverage – such as homeowner’s insurance, landlord’s insurance, renter’s insurance, general liability insurance, or car insurance – are exhausted.
Because it’s only used when other policies are maxed out, actual claims on umbrella insurance policies are rare. And so you can buy large amounts of umbrella insurance coverage relatively cheaply.
But when you need it, you really need it. Having an umbrella policy in force can mean the difference between emerging from the court proceedings unscathed except for your deductible, and being forced into bankruptcy.
The general rule of thumb is to have enough liability coverage to protect your entire net worth, including the equity in your home. If you have substantial assets you want to protect, you should consider another $1 to $5 million in umbrella coverage on top of that – and possibly more if you own a business or have other substantial assets.
At Select, we are known for selling the best SR22/FR44/SR50/SR22A Insurance to high-risk drivers. We will ensure that you get back your driver’s license with ease. To get an up-to-date quote from all the best insurance companies doing business in your state, click here, and fill out our form.
Better yet, let’s take a look at your total financial situation, and assess how much liability protection is appropriate. Then we can get the best available pricing for that particular amount and type of coverage. Call us today at (855) 438-7353. One of our licensed agents will help you right away.
