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What You Need to Know About Your Auto Liability Insurance

If you drive a car, you likely have auto insurance. Your insurance policy provides coverage against the many exposures of owning a vehicle. One of the most important perils it covers is your liability associated with operating a vehicle.

If you are involved in an accident and are found to be liable (negligent) for the accident, you could be held responsible for any bodily injury or property damage resulting from the operation of the vehicle.

Let’s take a look at your insurance policy. On the very first page (called the Declarations Page) you will see amounts listed for bodily injury per person, bodily injury per accident, and property damage per accident. These limits may read something like 100/300/100. This means that if you cause an accident and are found liable, your insurance will provide up to $100,000 to pay for bodily injury to any one occupant in the other vehicle, up to $300,000 as a total bodily injury limit for all occupants in the other vehicle, and a separate $100,000 to pay for property damage (damage to the other vehicle). Keep in mind these are liability payments, meaning this amount does not factor any payments in for your medical bills or damage to your vehicle. That is separate coverage in your insurance.
The limits mentioned above may sound like a large amount. If you consider yourself a good driver, you may think you could never cause such an accident. But let’s consider, for instance, how large a medical claim can actually be. According to the CDC, the average emergency room visit cost due to an auto accident is $3300. If a person is admitted to the hospital, the cost climbs to $57,000. This is an average per person. It does not take into account for things such as ongoing rehabilitation, physical therapy or out-patient treatments. It also does not take into account a cost for pain and suffering. So can a person injured in an accident have medical and medical related bills reach $100,000, absolutely. And what if your policy provides say $50,000 of bodily injury coverage? You are now personally responsible for the remaining amount. As discussed in previous articles, you can have liens placed on your property and garnishments placed on your wages.

What limits should I purchase?

Certain states, like New Mexico, have enacted state minimum liability limits, or the bare minimum a person is required to carry. In New Mexico, this limit is 25/50/10. Based on the information above, it is easy to see how this may not be enough insurance for an accident. But like anything else in life, we balance things like cost, needs and risk. Do you feel that you and your family are good drivers and don’t believe anything bad is going to happen? Do you look at the fact that for the last 20 years you have never had an accident so you can therefore assume there will not be an accident for the next 20 years? Also, remember we are using the word accident. This means accidental or not planned or intended. When a person is sliding through the snow and ice this winter unable to stop before colliding with another vehicle, they weren’t intending for it to happen. It’s an accident. Bad stuff does happen. So how much insurance should you have? I can’t give you the answer because I don’t know how bad your accident could be. But here is what I can tell you. In my 30+ years in the insurance business, I have never had a policyholder have a claim exceed 1 million dollars. They happen, I just haven’t had that happen to one of my policyholders. If I had to guess I would say 97%-98% of all accidents that I have seen have been under $100,000. So when folks ask us how much insurance do they need, we start the conversation at $100,000 per person of bodily injury liability insurance. That number, we feel, will cover the vast majority of accidents. But not all. So we talk about risks and costs and assets and try to find a balance between costs and comfort level. We can’t predict the future, we can only guess what might happen. Make sure you talk to your insurance professional about what liability limits you currently have and what your options are.

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