If you have a car or some other vehicle, then you are required by law to have automobile insurance, specifically, liability coverage. Simply put, liability insurance coverage provides a measure of financial protection for you against damages you become legally obligated to pay because of a wreck you caused. How much you need is a more difficult question to answer. Below are some thoughts from an attorney that focuses on dealing with situations where having liability coverage is necessary.
Georgia Law requires that you carry liability coverage with policy limits of at least $25,000/$50,000/$25,000. This is called minimum limits coverage. But, what do these numbers mean? Before answering this specific question, it is good to know that most all insurance companies use this same formatting regardless of the limits, so when comparing policies and rates, you will have a good idea of what kind of coverage your insurance premium is covering.
The first number ($25,000) is the maximum amount your insurance policy will pay to any one individual for injuries he or she receives when they are hurt because of a wreck you caused, or speaking in lawyer talk, for injuries proximately caused by a driver's negligence in a single accident, incident, or event (often referred to as “occurrence”).
The second number ($50,000) is the maximum amount your insurance policy will pay as a result of more than one person's injuries when they are hurt in a single accident or occurrence.
These above limits operate in this way: assume that you cause a motor vehicle collision and:
- One person is hurt: Your insurance company's maximum exposure to this individual is $25,000; or
- Two persons are hurt: Your insurance company's maximum exposure to the two individuals is $25,000 each for a combined single occurrence limit of $50,000. In other words, if just two persons are hurt, it is possible that each of the individuals recovers $25,000; or
- Three or more persons are hurt: Your insurance company's maximum exposure to just one of those injured is $25,000, and the bodily injury damages recoverable by the remaining two are $25,000 combined. Neither of the remaining two could recover a full $25,000 because the single occurrence limit is capped out at $50,000. Said another way, the total amount recoverable by one person is $25,000, but the three persons' recoveries combined cannot exceed $50,000.
The third number ($25,000) is maximum amount your insurance company will pay in a wreck you caused for damage to property in a single accident.
Earlier, I indicated this coverage “provides a measure of financial protection.” What happens if a person's or persons' bodily injuries or property damage exceeds the amount of insurance coverage you purchased? Legally, you would become responsible for the damages in excess of your policy limits. Phrased this way, the minimum limits of liability coverage, may not be enough to protect your own financial interests.
So how much coverage should you carry to adequately protect yourself if the required minimum limits is not enough? Certainly, your licensed insurance agent is going to be in the best position to help you address your specific needs. Further, you should be aware that opinions on this subject vary. It would be wise to consult and to get several opinions on this subject to see which one is in keeping with your own understanding of your needs. Many times, insurance professionals recommend an amount equal to the total value of your assets. Others recommend three times your total assets. In making sure you have the right amount of liability coverage, it is a smart to have a good idea of your own net worth. There are many online resources, such as a net worth calculator, which can assist with this determination. As a good rule of thumb, this writer and our practice recommends carrying bodily injury limits (the first two numbers) of at least $100,000/$300,000 unless your net worth signals that you should carry higher coverage limits.
More than the minimum limits is important for a couple of reasons. First, if you do not carry enough insurance to cover another person's or persons' injuries, attorneys may pursue your own personal assets to satisfy any remaining deficiency on a judgment against you. Second, my earlier article talked about Uninsured/Under-Insured Motorist coverage (UM/UIM). In short, you cannot get UM/UIM coverage for more than what your liability limits coverage provides.
There are a few other important considerations as you begin your search for good liability coverage or if you are considering revising your current coverage. This is where not all insurance companies are the same, and so it is important to shop around to make sure you find a good fit for your specific needs. First, some insurance companies will allow you to purchase ‘single limits' bodily injury coverage. This means the first two numbers are the same, e.g., $300,000/$300,000. This is a good because statistically speaking one person is more often than not more severely injured in a wreck than others, and thus having the entire “occurrence” limit available to satisfy that one person's injuries may afford you greater financial security and protection for a very similar premium. Second, some insurance companies will allow you to carry a different policy on each vehicle garaged at your residence, rather than having just one policy that covers all of your vehicles. Having separate policies is preferable, because in Georgia and many other states, you are allowed to “stack” your liability coverage to increase your protection. In other words, if you have three vehicles and cause an accident while driving one of those vehicles, you can add up the policies from all three cars to increase your liability protection.
If you determine that you need considerably more than the minimum policy limits, you should consider purchasing an umbrella policy. In general, umbrella policies provide insurance coverage above and beyond your other insurance. This includes not only your auto insurance, but also your homeowners' insurance policy. In comparison to your auto liability policy coverage, umbrella insurance coverage is generally very inexpensive; for instance, $1 million in coverage can many times be had for less than $200 premium cost per year. I plan to discuss umbrella policies in more detail in a later article. Check back in the coming weeks for more information on this important topic.
In summary, you can see there are many variables that go in to determining what is right for you. Five key points to remember:
- Have a good idea of your net worth;
- Understand policy language terminology and what type of coverage you are purchasing;
- Understand that different insurance companies can have very different products, and so it is a good idea to shop around. Cheaper premiums may not be the best coverage for you or your family;
- Consider an umbrella policy for additional coverage if necessary; and
- Discuss and finalize the specifics of your exact needs with your licensed insurance agent.
- Jenkins, Frank E., III & Wallace Miller, III, Georgia Automobile Insurance Law Including Tort Law with Forms, § 28 (2012-2013 Ed., Thomson Reuters)