How to Choose Your Car Insurance Liability Limits

One of the most important considerations when purchasing car insurance is determining what type of liability limits are needed. Every state has laws governing the minimum amount that you must buy to be legal in that state. However, these limits are not always high enough to protect your assets in the event of major accident. In theory, liability insurance protects the other people involved in an accident where you are at least partially at fault. The reality is that your assets should figure into the amount of liability insurance to obtain.

If you are middle class, liability limits may sound excessively high.
Many people are impressed by dollar values like $100,000 or $50,000. In the world of court settlements and lawsuits, these numbers can vanish as quick as a sabre tooth tiger in a tar pit. If you have significant equity in your home or a decent sized nest egg in a savings account, these can be at risk. The cost of most liability insurance is more reasonable than other types of insurance. You can raise these limits many times without breaking the bank.

Add up your net worth to assess your risk.
It is easy to miss items when deciding how much liability insurance you need to cover your worth. The equity in your home may be one of your largest assets. Any valuables that you own like jewelry, coin collections or antiques can be at risk if you are under insured. Cars and cash also figure into your worth. Take some time with this operation. Missing something that has both sentimental and intrinsic worth can be a costly mistake.

Look at your earnings potential, too.
If you are moving ahead financially either with your investments or your career, this can be considered in a lawsuit. Without adequate liability insurance, your future earnings can be attached. This can make a painful lawsuit settlement keep hurting for years to come. You need to realize that bankruptcy does not always dissolve this type of debt.

Add on enough additional coverage to make room for increases in your earnings and worth.
Because most people are lax about increasing insurance coverage as their need grows, it is best to buy more than you need now so that you do not get caught with too little coverage. If you do not revisit your insurance needs for three to five years, your financial picture can change a lot. You can always reduce your coverage if you find it is too high. Not many people will think to add more on as their accounts and earnings increase.

Know what the numbers mean.
When you buy liability insurance, you will see a series of three numbers on most proposals. This numbers will look like 100,000/300,000/100,000. The first number is the amount of bodily injury liability per person. The second number is the amount of bodily injury liability coverage per accident. The final number is the amount of property damage liability per accident. If you buy medical coverage, this is the amount of medical insurance that you have purchased to cover yourself and your passengers after an accident. These are the numbers that require the most consideration when buying liability limits to protect yourself from financial ruin following an accident.