How Much Car Insurance Coverage Do I Need? (Part 1)

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Thanks for everyone’s comments about insurers, I’m going to whittle it down to 3-4 major auto insurers, I don’t want to deal with the small fries. My policy expires in mid-July, so I have a bit of time. Now I need to examine my policy coverage levels to see if they are appropriate. There are many components of auto insurance, and I actually understood very little about each until recently.

How much liability coverage do I need?
Liability covers damage you may cause to other people’s property and injuries to the people themselves, including your passengers. It offers protection from lawsuits. Usually each state designates a minimum level of coverage that everyone is required to have, something in the neighborhood of $25,000 per person, $50,000 per accident, and $5,000 property damage.

How much you need depends on how much wealth you have, as well as your earning potential. Medical bills and lawyers suing you can easily reach into the hundreds of thousands of dollars. You can get sued even if the accident is not your fault. I have seen this happen. But if you are a college student, with $200 bucks in your checking account and $8,000 in credit card debt, you may be fine with the minimum. Basically, buy as much as you can afford (to lose).

To me, this is the most critical part of auto insurance. My wife and I don’t have an enormous net worth, but the whole point of insurance is to spread the risk. It doesn’t cost that much more, and in this highly litigious society I think it’s worth it. I am going to ask for liablility coverage of $250,000 per person, $500,000 per accident, and $100,000 property damage. This may be bit overboard for us, but it’s also the required level for me to purchase umbrella insurance, which I’ll get to later. Or maybe my jury duty is just making me paranoid…

Should I get Uninsured / Underinsured Coverage?
If you are involved in an accident with someone who can’t pay for the damage or injury caused, your insurance company will pay all your claims or the difference between your damages and what the other person’s insurance covers. Otherwise, you’ll have to sue the other party, and chances are if the skimp on car insurance, there won’t be much to sue for. Around 14% of drivers nationally are driving without insurance. That’s about 1 in 7. This level can be even higher if you live in areas where there are higher levels of illegal immigrants who are scared or unable to purchase insurance. These policies protect you against damage costs including lost wages, medical bills, pain and suffering.

Get it, up to your regular liability limits. I am.

Ok, gotta run to the courthouse. I’ll finish up my thoughts on comprehensive, collision, etc. later.

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  1. You are absolutely right on the liability. If you have money (or at least a high earning potential), you need a lot of liability coverage. In fact, I need to think seriously about getting myself a $1 Million umbrella policy.

    As for uninsured motorist — I always skip it. If you have collision / comp — that should cover you if the other person is un-insured (I’m not positive about that, but think this is true).

    I also skip personal injury protection (that might be a Texas thing). It only covers $2500 in medical expenses — and I have good health insurance already. Additionally — I skip rental since I can ride my Motorcycle if I have to.

    One more thing — I generally drive my cars for a long time. Once they get to be worth about $5,000 I drop collision and comp and basically self insure at that point.

  2. In Florida, there is no requirement to have bodily injury liability insurance – just property damage and personal injury protection benefits. Basically Florida is saying “we don’t care if you hurt our people, just not our cars!” So if you are hit by an uninsured driver, and don’t have uninsured motorist coverage, you are SOL. It is the ultimate in insanity in Florida to not have UM. However, if you insure yourself via UM, you must also carry BI!

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