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The Limit Does Exist – The Importance and Minimal Cost of High Liability Limits

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.

Auto Liability Limits

Auto insurance can be a little complicated. Getting the right coverage means thinking about what you drive, how you drive, how much you drive, how much you want to pay, what you want covered, and even more factors. But it’s easy to just think about cost. Buying car insurance based solely on price is intuitive and not uncommon, but the resulting policy almost always doesn’t provide adequate coverage, and it may cost you more money in the long run.

To understand how important it is to have a good policy, let’s start by looking at the minimum coverage that you need to have. Firstly, you need car insurance in general; driving without car insurance in Minnesota is illegal and can get you cited for a misdemeanor. But let’s assume you’ve got the bare minimum. All owners of cars driven and primarily used in Minnesota need to have no-fault,liability, and uninsured/underinsured motorist insurance.

No-fault insurance, also called personal injury protection (PIP), will pay for your medical bills and loss of income after a car accident, regardless of who caused the accident. This extends to your household family members, and it will also cover you if you’re a passenger in someone else’s car. The minimum state required limit for your PIP is $20,000, which is paid by your insurer and covers your medical bills regardless of fault.

Liability insurance helps pay for injuries and property damage that result from a car accident for which you are found at fault. The minimum requirements for liability coverage are 30/60/10, meaning $30,000 for injuries per person, $60,000 for total injuries per accident, and $10,000 for property damage. After a car accident you were deemed at fault for, the other driver’s PIP will take effect first, and your liability coverage kicks in if the cost exceeds the other driver’s PIP.

Lastly, uninsured/underinsured motorist coverage helps cover costs of an accident with a driver who’s uninsured or has inadequate insurance. If you get into an accident with an uninsured driver, your uninsured motorist coverage will help pay for the costs once you’ve exhausted the limits of your PIP. Your underinsured motorist coverage does the same for an accident with a driver who’s at fault and underinsured; the coverage takes effect once both your PIP and the other driver’s liability insurance limits have been exceeded.

With three different types of insurance and thousands of dollars worth of coverage, this required coverage might seem satisfactory or even unnecessary. But understanding adequate coverage means thinking about the situations on the road that cause it to take effect. This is when we start to see how low liability limits often create insufficient coverage. Let’s say you just got into an accident for which you are at fault, and you and the other driver both have the minimum amount of required coverage. Both your car and the one you hit have a few people in them, and the cars are seriously damaged. If everyone involved has PIP coverage, $20,000 will go towards their injuries. But if anyone is seriously injured, medical bills could cost tens of thousands more than that. Your $60,000 of liability insurance per accident wouldn’t be nearly enough to cover the medical bills for seriously injured passengers, even after everyone’s PIP has kicked in. This scenario assumes that the other driver is nice enough to not sue you, as a lawsuit could cost you hundreds of thousands more (which adequate liability limits would also cover). Also, you’ll have to pay for the damage to your car entirely out of pocket in the event your property damage limit was reached in order to pay for the other vehicles. This kind of catastrophe is certainly unlikely, but disasters like this happen every day. It is for this reason that nearly every state in the U.S. requires auto insurance, and it highlights the importance of getting adequate coverage to give you a financial safety net when things go wrong on the road.

Adding extra coverage to the minimum requirements might seem expensive, but the price of better coverage may surprise you, and there are some ways to lower your premium. The most important thing to remember is that increasing your coverage often affects your premium only slightly. Especially if you’ve got minimum coverage, extending the depth and breadth of your policy is often a no-brainer because it provides important coverage for only a marginally higher premium. Doubling your liability limits, for example, will not double your premium; you’ll get twice the coverage for probably less than ten dollars more per month. This may sound illogical, but a small increase in premiums is a lot of money for a big insurance company.

There are also several ways to lower your premium via discounts. Basic discounts such as a good driving record are usually applied automatically, but some discounts are available only if you look for them and take action. If you take a defensive driving course, for example, you may be eligible for a discount. If your driving habits change, and you’re now driving rarely or only for pleasure, let your insurance company know; they will likely lower your premium. For the insurance company, auto insurance is all about assessing your risk as a driver and combining it with your desired coverage to come up with a price. For you, auto insurance is about being secure and protected from disaster while paying a reasonable price. Nobody wants to get into an accident, and everyone wants to feel safe. This is why the insurance system works, and the only way to take advantage of it is to talk with your agent to find the coverage that’s right for you.

M.E.