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The Importance Of Having The Right Auto Liability Limits

September 13, 2011

When people buy auto insurance, there is often the feeling that they have completed an obligation.  Almost as if they can now check it off their list of  “things to do”.  Now that you have insurance, you are covered against all the bad things that can happen, right?  Well, some of them anyway.  But what happens if you are involved in an accident and the claims against you exceed the limits on your auto insurance policy?

THE SCENARIO

Let’s say your day starts out just like any other day.  You get up, get ready for work and head out the door.  You are driving along on your normal route when suddenly something very different happens.  Perhaps your cell phone rang and you realize it fallen between the seats.  As you try to dig it out, you take your attention away from the road for just a moment.  But in that moment, all of the cars in front of you abruptly stopped… and now you panic because you realize there is no time to stop and you crash into the back of the vehicle in front of you.  You get out of your car, see the damage and notice that you pushed the car in front of you into the next car.  What if the people in that car need medical attention?  What if they cannot return to work? God forbid, what if someone were killed?

This is not an unusual scenario I have painted here.  We have all driven by horrific accidents. 

THE DANGER

So if you have $50,000 per person and $100,000 per accident for liability coverage and the claims against you amount to $400,000, now what?  Well insurance will pay out to the limits you selected, the $100,000.  The rest of the bill is yours.  If you cannot come up with the additional money, all of your assets are now in danger.  Your home, your savings.  If you do not have enough assets, a court will likely garnish your wages up to 25%  until the bill is satisfied.  We recently talked to a doctor with an expensive car and a $600,000 home who had been carrying liability limits of  50,000 per car accidentperson/100,000 per accident/50,000 property damage.   My blood boiled.  Did no one ever take the time to tell the dear doctor the risk he was taking by carrying such low limits?  The difference in raising these limits five-fold to 250,000/500,000/100,000 was only a difference of $40.

THE LESSON

If you do not have enough liability coverage on your auto insurance, the results could literally be life-changing.  If your deductible were $1000 instead of $250, the difference of $750 out of your pocket may be painful but probably not life altering.  The lesson here: carry high liability limits if you can.  If needed, offset the price with a higher deductible.   Call your agent today and ask for a review of your coverages.

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One Comment leave one →
  1. September 15, 2011 10:10 pm

    Those car crashes happen everyday. I’d rather be safe than sorry.

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