How much liability coverage should I have?

Liability coverage is the coverage on your policy that would pay toward a third party, on your behalf, if you were liable for their damage, injury or death as a result of an accident. Proper liability coverage will preserve all that you have worked for and future earnings via your wages being garnished if coverage and assets aren’t enough to indemnify the third party. Because of this, I believe, your liability coverage is the most important coverage on your policy. This is especially important if you are financially successful and have lots to lose.

The good news is liability coverage is relatively inexpensive. The more the cost is for liability, chances are, the more you need it. For example, adding a youthful driver to your policy can be costly, even with the limit of liability remaining the same. This is because the likelihood of being sued as a result of your inexperienced youthful driver getting into a serious accident causing injuries and possibly death to a third party has been dramatically increased.

What you can do to protect yourself from being sued is increase your liability limit (Bodily Injury, Property Damage) on your auto, home and any other policies (Boat, ATV, landlord policy) to more than your net worth. Some say you should have more liability coverage than your asset base. This might involve purchasing a “personal umbrella liability policy”. These umbrella polices are sold in increments of a million dollars and will usually cost around $200 a year for a one million dollar policy for a typical family with one home and two vehicles.

This umbrella liability policy will provide a blanket of extra liability coverage over and above all your other polices covered under the umbrella. If you own insurance on a boat, ATV, rental properties and more, they would all be protected under this umbrella and that would add a little more cost to the umbrella’s annual premium. There are also added cost for each vehicle you own and household driver under age 25. I usually recommend you purchase an umbrella policy if your net worth is over $250,000. Your net worth is all that you and your spouse own (your asset base) minus loans outstanding. This includes your retirement savings, home, vehicle values and all your personal property including rental properties and a business you own. Just because your rental property or business you own is an LLC or corporation with insurance on it, doesn’t escape you including it in your personal net worth calculation.

If you own it, and can sell it, its value needs to be included in your personal net worth. That can be hard to grasp, but trust me, it is better to be safe than sorry.

One of the added benefits of having higher liability limits on your auto insurance is that you can also have higher limits for UMBI (uninsured/underinsured bodily injury) for a low premium. Having higher UMBI coverage helps to indemnify you and passages if someone else hits you and has little or no liability insurance to pay for your injuries, pain and suffering, loss of wages or even death of a loved one.

If you have questions or concerns about how much liability coverage you need, contact Independent Insurance Agent Martin Sajbel for a free consultation.