Nobody expects to be an at-fault driver, but with over 4 million licensed drivers in Minnesota, and the average driver getting into an accident every 17.9 years, having to pay off a liability claim has a realistic probability.
Let’s start with liability insurance. What is it? In the chance that you’re at fault in an auto accident, liability insurance helps cover you for the bodily injuries and property damage that the other person sustained. The liability limit is the maximum amount of money that the insurance company will pay to cover these expenses. The higher the limit, the more coverage you receive in a claim, lowering the risk of your personal assets being seized.
Why go for a higher limit?
Along with the auto insurance policy you choose, Minnesota law requires a minimum amount of liability coverage for all licensed vehicles. These minimums cover 30,000 dollars per injured person with up to 60,000 dollars per accident, along with 10,000 dollars for property damage (30/60/10). This may seem like a lot of money, but many times this only covers a small fraction of the total cost. According to data gathered by Thomson Reuters, in 2012, the average vehicle liability award was 298,731 dollars.
By purchasing a higher limit, you protect your assets from potentially being seized if the claim exceeds your limit. It is recommended to get a liability insurance policy that covers at the very least 100,000 dollars per person and 300,000 dollars per accident, along with 35,000 dollars to cover property damage (100/300/35). These are more valuable as your minimum limits and should only go up from there.
This property damage number has been established to cover the average price of a car (around 35,000 dollars); and therefore, the property damage limit will cover the average car on the road. Makes sense. However, not every car on the road is the “average car.” There are Mercedes and Bentleys roaming around too, valuing over 100,000 dollars. Not only that, but there is the possibility of a multi-car crash, which could add up to the price of these luxury cars, if not surpass it very quickly. That 35,000 dollars in property damage isn’t going to cut it.
To account for these realistic and expensive scenarios, a more adequate liability limit would be 250,000 dollars per person and 500,000 dollars per accident, along with 250,000 dollars in property damage (250/500/250). Often times a car accident isn’t as simple as hitting one low-value car. In 2014, there were 78,396 reported traffic accidents in Minnesota, involving around 190,700 people. Crashes can easily become multi-vehicle and multi-person.
By paying just an extra three to five dollars per month to get from a 100/300 plan to a 250/500 plan, you could be saving yourself hundreds of thousands of dollars in liability claims. The five dollar latte that you buy every morning isn’t worth 500,000 dollars of out of pocket cost. By putting those five dollars towards your auto insurance policy, you can help kick that caffeine addiction and contribute to your financial stability.
What is at risk?
When considering the limit you want as part of your auto insurance policy, think about how much your assets are worth. In the instance that you cause an accident, the insurance company will only pay up to your limit in a claim; the rest is your responsibility. Even if you feel as though you have nothing to lose, liability claims can take more than just your current assets. You could be affected in your future income as well.
Future Wages: Your ability to work is one of your strongest assets. A court can take 25 percent of your future earnings for as long as it takes to pay off a judgment. Saving up for a vacation? Trying to pay off your student loans? Well, those plans could be put on hold if your limit isn’t high enough.
Liquid Assets: Cash, checking account, savings account, stocks, certificates of deposit. These are all vulnerable in a liability case. Luckily, your 401(k) and Roth IRA are usually exempt. Nonetheless, your life savings could be gone in the blink of an eye.
Personal Property: Anything that belongs to the at-fault driver, from furniture to appliances, that have a cumulative value that exceeds 10,350 dollars are at risk. Additionally, wedding rings and any other symbols of marriage in your possession that value around 2,817 dollars can be taken. Not only will you probably be sleeping on the couch, but you may not even have a couch to sleep on afterward.
Real Estate Property: Your home has value. If it is worth more than 390,000 dollars and is less than 160 acres of land, your property is at risk of being seized to pay off the claim. Real estate is a good investment and by getting a higher liability limit, you help secure that investment.
Auto: If you’re trying to get from point A to point B, an auto accident can make sure you’re taking public transportation to get to point B in the future. If your car is worth over 4,600 dollars, it can be taken to contribute to the claim.
By increasing your liability limits, you are also adding to the protection you have over your current and future assets. Increasing the liability limit in your policy from state mandated minimums to a comprehensive high limit liability of 250/500 can be between 10 and 20 extra dollars per month. This small adjustment can help save you thousands of dollars down the line and maintain your financial future.