Determining How Much Liability Coverage You Need

Liability insurance is protects you in the event you are in an accident where you end up injuring someone or damaging someone else's property. Most states require some level of liability coverage, you but you always have the option to purchase more than the basic requirement. Most people don't really take much time to review how much is liability insurance covers when they are filling their auto insurance paperwork. It's important to remember that not having enough means you will need to pay for the expenses out of pocket, and may end up having to sell personal assets, take out a loan or find other ways to pay the high amounts associated with car accidents.

Use these tips to determine how much liability coverage you need:

1. Review state minimum limits. The state minimums requirements include information on coverage for one injured person, all injured persons combined, and the amount of coverage for any property that is damaged in the accident. Take note of these minimums, then ask about additional coverage plans that are available to you.

2. Calculate the value of your personal assets. Remember that you can be sued for damages if your insurance doesn't cover enough of the medical and property damage expenses incurred in the accident. If the value of your personal assets isn't very much, you may actually be better off keeping the state minimum limits. If you live in a high-priced home, have several vehicles and other assets, and a large savings account, purchase a premium with a higher limit so that these items are covered in the event of a lawsuit.

3. Consider additional insurance policies. If you are very wealthy and have numerous assets of a high value, you should consider getting the highest possible limit of liability coverage possible. You'll need substantial coverage to ensure that you aren't forced to sell these assets or give them up in order to pay for any damages outside of what your insurance policy covers. Talk to a financial advisor or financial planner to determine what your net worth is so that you can make the most informed decision about liability coverage.

Determining how much liability coverage you need can be tricky, but the best way to calculate your "ideal" amount is to review your personal assets and net worth, and choose a plan that you can afford. Take some time to review the cost difference between different levels of liability coverage when filling out your insurance paperwork. Remember that bumping up coverage could help to ward off a costly lawsuit and will protect your assets.

Sources:
AutoInsuranceTips: Liability Insurance -- How Much Coverage Do You Need?
SmartMoney.com: How Much Auto Insurance Do You Need?
The Money Alert: How Much Personal Liability Insurance Do You Need?