Liability Insurance: How Much Is Enough?

Liability insurance is a type of insurance that covers other people's expenses when you cause an accident. It is required by law in nearly every state, with the exception of Virginia and specific parts of Alaska. The minimum amount of liability insurance you need to have varies by state, but it's a good idea to have more than the minimum to protect yourself financially in case of an accident. The recommended amount of liability insurance is $500,000, which includes both property damage liability and bodily injury liability. You can also opt for a single coverage limit, which provides a larger, more flexible coverage limit. It's important to note that liability insurance won't cover your own medical bills or car repairs; for that, you'll need additional types of insurance such as collision coverage and medical payments coverage.

How much liability insurance do I need?

The amount of liability insurance you need depends on a few factors. Firstly, you should check the minimum liability coverage required by your state. However, most state minimums are not sufficient to cover you in the event of a serious accident, so it is recommended that you purchase as much liability coverage as you can reasonably afford.

The recommended minimum liability coverage is $100,000 per person for bodily injury liability, $300,000 per accident for bodily injury liability, and $100,000 for property damage. If you can't afford this level of coverage, opt for the highest amount you can manage.

You should also consider your net worth when deciding on liability coverage. Calculate your net worth by adding up the value of your home, vehicles, savings, and investments, and then subtracting your debts. You should then ensure you have enough liability coverage to protect your assets. If your net worth is high, you may want to consider purchasing an umbrella policy, which provides additional liability coverage above and beyond your standard auto insurance liability limits.

In addition to liability insurance, you may also need to carry other types of coverage, such as comprehensive and collision insurance, depending on your state's requirements and whether you lease or finance your vehicle.

Do I need comprehensive and collision coverage?

Whether you need comprehensive and collision coverage depends on several factors. While it is not required by law, it is often required by lenders if you are leasing or financing your vehicle. If you own your vehicle outright, you may still want to consider comprehensive and collision coverage if you cannot afford to pay for repairs or replacement out of pocket.

Comprehensive insurance covers damage to your car caused by incidents such as fire, vandalism, falling objects, weather-related damage, and theft. Collision insurance covers damage to your vehicle caused by a crash involving another car or object.

If your vehicle is older or has a low value, comprehensive and collision coverage may not be worth the cost. In this case, you may want to consider liability-only coverage, which covers bodily injuries and property damage to another party in the event of a crash.

Ultimately, the decision to opt for comprehensive and collision coverage depends on your financial situation, the value of your vehicle, and your risk tolerance. If you can afford to pay for repairs or replacement out of pocket, you may choose to forego comprehensive and collision coverage. However, if you are leasing or financing your vehicle, or if you want the peace of mind that comes with full coverage, then comprehensive and collision coverage may be a worthwhile investment.

How much property damage car insurance coverage do I need?

The amount of property damage car insurance coverage you need depends on your state's minimum liability requirements, your budget, and your personal needs.

Most states require drivers to have a minimum amount of property damage liability coverage. This type of insurance covers damage to another person's property if you're at fault in an accident. The minimum amount of coverage typically required is $25,000 per accident. However, individual state requirements vary, with some states mandating higher or lower limits.

While state-mandated minimums are the legal requirement, they may not be sufficient to cover all property damage you might cause in an accident. To fully protect yourself, it is recommended that you carry the highest amount of liability coverage you can afford. A common recommendation is to have liability coverage of at least $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $100,000 for property damage.

In addition to property damage liability coverage, you may also want to consider other types of insurance, such as comprehensive and collision coverage, to protect your own vehicle in the event of an accident.

How much medical payments coverage do I need?

Medical payments coverage, also known as MedPay, is an additional coverage option for auto insurance policies in most states. It is only required in two states: Maine and New Hampshire. MedPay can help pay for medical expenses for you or your passengers after a car accident, even if you are at fault. It can also help cover your out-of-pocket costs, such as your deductible, if you have health insurance. If you don't have health insurance, you should consider a higher limit or maximum coverage. Coverage limits typically start at $1,000 per person and max out at $10,000 per person.

If you have health insurance, it is recommended to get enough coverage to pay for your health plan's deductible. It is generally a good idea to carry coverage equal to your health insurance deductible so you can use MedPay to cover your out-of-pocket medical expenses.

Medical payments coverage is also included in homeowners insurance policies. It pays medical bills for guests who are injured on your property, regardless of who is at fault for the injury. Coverage limits for this typically range from $1,000 to $5,000 and are intended to cover smaller injuries.

How much personal injury protection do I need?

Personal injury protection (PIP) is a type of insurance coverage that pays for medical expenses and lost wages resulting from a car accident, regardless of who is at fault. PIP is also known as "no-fault insurance" because it is required in states with no-fault laws, which prohibit injured drivers from suing at-fault drivers after an accident unless their injuries are severe or their medical expenses exceed the state's minimum requirement to sue.

The amount of PIP coverage you need depends on several factors, including your state's requirements, your health insurance coverage, and your financial situation. Here are some considerations to help you determine how much PIP coverage you need:

• State requirements: PIP is required in some states, optional in others, and not available in most. As of September 2023, 15 states and Puerto Rico required PIP coverage. The minimum coverage requirements vary by state, with some states mandating as little as $2,500 and others up to $25,000. If you live in a state that requires PIP, you must carry at least the minimum amount.
• Health insurance coverage: If you have comprehensive health insurance that covers medical expenses and lost wages resulting from a car accident, you may not need as much PIP coverage. However, if your health insurance has low limits, coverage gaps, or high deductibles and co-pays, you may want to consider additional PIP coverage.
• Financial situation: If you have a high net worth, you may want to consider purchasing more PIP coverage to protect your assets in the event of a lawsuit. Additionally, if you are concerned about covering lost wages or funeral expenses in the event of an accident, you may want to increase your PIP coverage.

When deciding on the right amount of PIP coverage, it is important to review your state's requirements, your existing insurance coverage, and your financial situation. It is generally recommended to have enough liability coverage to protect your assets in case of an accident.

Frequently asked questions