Are your liability limits high enough?

Most states have mandated that car owners carry certain bodily injury liability and property damage liability limits as part of their car insurance policy. These limits are supposed to make it so that if you harm others, you have a way to pay for their damages. But these state-mandated limits may not be enough.

Bodily insurance requirements are listed per person and per accident and states require anywhere from $10,000 per person and $20,000 per accident (written as 10/20) up to $50,000 per person and $100,000 per accident (50/100).

The National Safety Council (NSC) currently estimates the following average costs of motor vehicle injuries:

  • Possible injury - $12,600
  • Non-incapacitating evident injury - $22,300
  • Incapacitating injury - $69,200

These numbers show that your car insurance policy limits can easily be exceeded if in an auto accident you severely hurt one person, or cause minor injuries to several people. The insurance industry recommends bodily injury limits of 100/300 or higher so that you won't be as likely to have to reach into your own bank account if you injure others with your car.

The average price of a new car sold in the U.S. is nearly $30,000 and continues to rise each year. Depending upon what state you live in, the state required minimum property damage liability is anywhere from $5,000 up to $25,000.

By carrying only the state-required amount of property damage, your auto insurance policy is likely to be exceeded if you crash into a new (or just expensive) car and total it out, cause a multiple car crash or run into a building. That is why $50,000 of property damage liability is recommended, and more if you can afford it.

Low limits of liability on your car insurance policy give you some level of protection and are better than driving uninsured. However, if the limits are too low, it's possible your personal assets will be put at risk.

The cost to raise your liability limits is minimal in comparison to trying to find a way to pay thousands (or tens of thousands) of dollars for injuries or damages for which you are found to be liable.

If you don't voluntarily pay for the damages for which you are personally responsible, the other party can go to court and get a judgment against you. If you fail to pay the judgment, there can be serious ramifications. In several states, this includes the indefinite suspension of your license until you pay or set up an accepted payment plan.