How Much Auto Accident Insurance Should I Buy?

How Much Auto Accident Insurance Should I GetIn order to answer this question, keep this important concept in mind:  Liability insurance is purchased to protect your assets.  The more assets you have, then the more liability insurance you should purchase.  Likewise, everyone should consider their own specific financial circumstances when deciding how much car insurance to purchase.

When you buy auto insurance, your policy has certain limits up to which they will provide coverage.  For instance, in Texas, the minimum liability limits for personal injuries are $30,000 per person, not to exceed $60,000 per accident.  This means that your policy will provide up to $30,000 per accident for any individual claimant, but will not pay more than $60,000 for any accident in the event there are multiple injured claimants.  Anyone can purchase higher policy limits, but there is always going to be some limit applicable to any automobile liability policy.

But what happens if the injuries are more than the policy coverage limits?  To answer this question, we must first discuss the the legal side of the issue and then compare that to the practical side.  So let’s use this simple example.  Assume you are involved in a car accident where you are found at-fault.  Let’s also assume that the other driver is injured to the tune of $50,000 in medical expenses and is making a claim for an additional $100,000 in pain and suffering.  If you carried a minimum policy of $30,000 per person, then your insurance company will only pay up to that amount in the event a judgment is entered against you for the $150,000.  Technically, you would be personally liable for the rest of the judgment.

However, this is where practicality comes into play.  Chances are that most people carrying a minimum liability policy do not have the assets to pay-off a personal injury judgment.  The injured claimant’s attorney also knows that if a judgment is obtained against you for $150,000, it is probably worthless beyond the amount payable under your auto insurance policy.  Therefore, a personal injury attorney in these situations will make a demand upon your insurance company for payment of the policy limits as full and final settlement of the injured person’s claims.  If your insurance company agrees to pay the policy limits, then the case is settled and you are off the hook.  Most, (if not all)  injury attorneys know that their best chance of collecting any money for their injured client is from the proceeds available under the liability policy.

I am not suggesting that everyone should purchase only the minimum policy limits.  If the injured claimant’s attorney is doing his homework, the attorney will probably do an “asset check” on the liable party before making a demand for the policy limits.  The reason for this is that the attorney may not be willing to settle for the policy limits if the liable party has substantial “non-exempt” assets.  In this case, it might be in the client’s best interests to pursue the liable party’s assets rather than just settle for the policy limits.  Such assets might include boats, RVs, rent houses, lake houses, land, savings accounts, stocks, bonds, investment portfolios, and any other assets beyond that of the average middle class household.

This brings us back to the original rule of thumb: the more assets you have, then the more insurance you should purchase.  Likewise, everyone should have a very frank discussion with their agent before deciding how much insurance to purchase.

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