Is Minimum Liability Coverage Enough?
If you’re reading this article, chances are you live in a mandatory liability state. What does that mean? It means that to own and operate a registered motor vehicle in your state you are required to maintain a minimum amount of auto liability insurance. I’m guessing this isn’t news to you. You’ve likely been asked for proof of insurance at various times when dealing with law enforcement or your local vehicle registration department. So, let’s assume you’ve satisfied your local government’s minimum liability requirements…
Does this mean you have enough protection?
While I respect the authority and the hard work of elected officials, it’s a scary thing to assume they know how much liability protection you need. While they may have put a minimum requirement in place, it’s up to you to make sure your minimum coverage needs are met. So how do you do that?
In most cases, there’s no exact dollar amount of necessary coverage that can be pinned down. It’s a fluid situation. Your coverage needs are affected by ever-changing factors that may sometimes be beyond your control. Let’s look at some numbers to illustrate the point:
- As of January 2021, the average transaction price associated with new vehicle purchases is over $40,000 with a surprisingly high number of these transactions being greater than $100,000.
- On average, 3,287 vehicle-related deaths occur each day in the US. The average financial cost of each of these deaths is $1.7 million.
- The average cost of non-fatal disabling injuries due to a motor vehicle accident is $98,400.
- The average court-awarded settlement related to an auto accident claim is $77,600 when the claimant has legal representation.
Based on the statistics above, let’s look at an example…
Here in Alabama, the required minimum liability coverages are:
- $25,000 Bodily Injury Liability Coverage per injured person
- $50,000 Bodily Injury Liability Coverage for all injured persons combined
- $25,000 Property Damage Liability Coverage
So, let’s say your auto insurance policy provides these required levels of coverage and you’re found to be at-fault in an auto accident. Here are the details:
- The other party’s 2021 GMC Yukon Denali is damaged beyond repair. Cost – $85,000.
- There were three occupants in the other vehicle. Two of them sustained disabling injuries. The third occupant was killed. Cost $1,896,800.
- Your vehicle can be repaired, but the cost will be approximately $10,000.
Since your auto insurance policy provides only the required minimum coverages, you have no coverage for damage to your own vehicle. So that $10,000 repair bill is on you. But that’s the least of your worries. The sum total of your liabilities comes to $1,981,800. Of that amount, your insurance policy will pay $75,000. That leaves the remaining balance due of $1,906,800 sitting squarely in your lap.
Your financial future just evaporated.
“But wait… I had the amount of coverage the government said I had to have.” Yes, you did. But it wasn’t enough. And this example didn’t even address things like lost wages, pain and suffering, possible punitive damages…
A simple conversation with your insurance agent could reduce or even eliminate these risks for you. But more to the point, purchasing an insurance policy that provides only the required minimum coverage could leave you extremely vulnerable.
Don’t misunderstand me… I’m glad we have legislation in place that requires at least some level of liability insurance. But we should never make the mistake of assuming it’s enough. Having adequate liability protection requires a thoughtful, personalized conversation with your insurance agent. And if you don’t have that kind of relationship with your agent, please call me today so we can fix that.
Agency Operations Manager & Personal Lines Specialist