How Much Liability Insurance Do I Need?

It’s a fine line to walk! How much liability insurance do you need? You certainly don’t want to be underinsured, but you also don’t want to pay for coverage you don’t need. Below are some tips to help make sure you have the right amount of coverage, and other common questions.

1. What does liability insurance cover?

Liability is the type of insurance that is required by law for all vehicles.  So even if you don’t care if something happens to your car, you still need to have liability insurance.  The reason for this is because liability protects the other person.  This covers the other’s property damage and/or bodily injuries, should you get into a car accident.

Fact: Many don’t know this, but liability insurance also protects you, specifically your attachable assets (the things you own), should someone sue you.

I talk more about assessing risk in my blog about using your insurance here.

2. How do I know if I have enough coverage?

This is important to know because you don’t want to pay for too much insurance, but you also don’t want to be underinsured should something major happen. Before I dive too deep into how to calculate the coverage you need, I want to remind you I am not a lawyer and every state is different. When I sit down with a client there are three categories that I always ask about, in order to determine how much they have in attachable assets (or how much they need covered):

1. Tax Qualified Assets: things like a 401k or a retirement plan would fall into this category.  Most of the time these are protected, but it’s worth looking into to make sure.
2. Non-Tax Qualified: Items in this category would be equity in your house, rental properties, stocks, bonds, and even your cold hard cash could be at risk!
3. Life and Income: Life insurance is typically protected in this case, but I like to look a the policy to make sure and to see if there are any “at risk” assets we might be able to rearrange into this policy for protection.  For many, their largest asset is their income, and this could be at risk should you be sued.  Wage garnishes could be up to 50% of your paycheck for up to 10 years, with the option to renew for another 10 years. 

Fact: 50% of your wages could potentially be garnished for up to 20 years, if you’re underinsured and someone sues you!

3. Do I need to have liability insurance outside of my car?

Yes!  You could be held liable for someone else’s property damage or bodily injuring almost anywhere.  Insuring someone on the golf course, setting down your purse and someone trips over it.  Even just being in the wrong place at the wrong time. 

Fact: You can make sure you’re covered in these situations by having liability coverage on something as small as a $15/month renter’s insurance policy.

4. Can I just set it and forget it?

Absolutely not!  Just like going to the doctor, you should review this coverage annually.  Things change, your income hopefully will increase over time, you might buy a new home or rental property, start or expand your family.  So you want to make sure you review your coverage every year.

If you don’t have an agent that can help you review your coverage, my team and I would be happy to help! Just look us up!

-Kristin Francy, Insurance and Financial Service Agent