Are your Auto Liability Limits High Enough?

Too often we are lulled into a false sense of security because: we have insurance, we’re safe drivers, we don’t do wild and crazy stuff. The problem comes when we fail to recognize the loss extremes our activities could result in. It’s hard for the average person to imagine really needing more insurance, and even tougher to justify paying the added premium expense. When people decide to increase their liability limits, there is usually an event that prompted this change.

Back in October of 2014 I provided an article under the title “Is it worth buying an Umbrella?” It began: “All of the traffic is at a standstill. You’re standing on the side of the road bewildered; you’re in shock. People are coming from everywhere huddling around the front of your car. Is this a nightmare? You retrace the last few moments:  noting the time you left home, when you dropped the kids off at the day care, you were heading to work on Rt. 101. Then panic sets in as you recall the blinding sun’s glare while approaching the Rt. 116 intersection.  You never saw the jogger until about a second before impact.  You weren’t drunk. You weren’t speeding. You weren’t talking on your cell phone or texting.  Why did it happen?  Where did he come from?”

 Now let’s revisit that situation with some facts that actually took place here in RI. A retired couple was driving on Rt. 44 in Greenville heading west into the late afternoon sun. A group of teenagers dart across the road. One momentarily resists the urgings to run with the group. The approaching motorist slows for the group, which the other teen took as her opportunity to run to join the others. Problem was that the couple could now clearly see the group, but through the sun’s glare never saw the teen that lagged behind. Her life was unfortunately taken in that moment. That’s not a case where reckless driving was involved. The driver had a spotless driving record. He had no adverse health conditions that affecting his ability to react. It was truly an accident. In the aftermath of such an accident you want to know you have insurance to protect you. But do you have enough?

In these scenarios, only one person was struck and injured. There was no property that you caused to be damaged. Unless you have an Umbrella policy it is unlikely your policy limits will be adequate.

In the first scenario involving the jogger, assume he does survive after undergoing months of hospitalization, rehabilitation, and lost income.  Depending on the extent of injuries, it would not be unreasonable to have the medical costs and lost income exceeding $500,000. Now add to that pain and suffering, lack of consortium, compensation for life style modifications, decreased future earnings capacity, and other components of a loss.  After such a serious accident, the resulting settlement could easily be $750,000 to $1,000,000. When there is a loss of life involved, courts look at those same components adding their life time earning potentials, and their burial expenses.  

Let’s step back to explain two ways a policy can be written so as not to confuse people from the start.  You can buy a policy with one single liability limit known as a “Combined Single Limit” or you can buy it with “Spilt Limits”. The “Split Limits” identify a maximum limit for any one person injured, another for all the persons injured, and a third for the property you cause to be damaged. Split Limit policies are usually written in thousand dollar increments of 25/50/25, 50/100/50, 100/300/100 or 250/500/100. The “Combined Single Limit” combines each of the split limit policy components into one combined limit. Under such policies, the limit maybe $50,000, $100,000, $200,000, $300,000, $400,000, up to $500,000. The technical logic for one format vs. another is fodder for a debate between insurance professionals; it usually has little impact on you.

Auto liability limits legally may be as low as $25,000 per person injured, $50,000 for all those injured, and $25,000 for the property that you cause to be damaged; abbreviated as 25/50/25. Those limits are inadequate for most accidents and there is no chance those limits would be adequate for either of the scenarios I started this article with. Very commonly people assume they don’t need higher limits because, “I don’t have assets to attach” or “You can’t get blood from a stone”. Parents commonly want to take their teenage drivers off their policy, set them up with their own policy using minimum limits so as to save money. They falsely assume that if a loss happened, the kid would simply declare personal bankruptcy and start over. Courts don’t allow that anymore. Those damage awards stay with you for life or until you pay them off.

When I’m asked “how much insurance is enough?”  I rhetorically respond, “How much can you afford?” In realty, the cost to increase your limits is not usually a big increase when paid monthly.  As for what limits to use, with the Split Limit format, the commonly used limits today for most people are 100/300/100 or 250/500/100. For the common accident those limits and the single limit options above $50,000 per person injured will likely be adequate. However when one or more people sustain serious injuries, even the higher split limit coverages maybe inadequate. That is when the Umbrella policy will be needed to avoid personal assets evaporation.

Have you ever been walking under a sturdy umbrella on a stormy day noticing others running past trying not to get wet. The umbrella serves to minimize the adverse impact of the weather. The bigger the umbrella you are holding the greater your level of protection. It may not prevent you from experiencing any discomfort, but that umbrella sure does determine how wet you end up.

That analogy applies closely to the insurance Umbrella policy. A personal insurance umbrella provides a canopy of protection over all of your individual liability insurance policies.  Usually sold in $1 million increments, it adds extra layers of protection for all of your liability insurance needs.

The cost of an umbrella has many variables affecting the price. Including: the number of cars on the policy, the age and number of drivers, the number of properties owned, and your family’s violation and loss history.  A couple that owns their home, has 2 cars, can expect their umbrella to cost less than $20 a month. A family of 4 with 3 cars, owns a home and has no accidents or violations would likely be paying closer to $30 a month.  

Now ask yourself how well are your assets protected if you have an accident?