Losing Everything Due to Inadequate Auto Liability Coverage
Updated: Jun 24, 2021
All states set minimum coverage levels for drivers, but if you are involved in a serious accident, minimal coverage may not get you off the hook for the full extent of damages.
Your state's goal is to make the required insurance affordable. Still, in many cases, the established minimum coverage is not adequate to cover the liability costs if you are found to be at fault in a costly accident.
Even limits that are several tiers above the minimum may not be adequate for some drivers because once those limits are exhausted, any remaining damages must be paid out of pocket.
This is important to consider as the cost of automobile claims has been rising rapidly during the past 10 years for a few reasons:
More distracted driving has caused an increase in deadly accidents.
The cost of medical care to treat injured people has skyrocketed.
Modern vehicles have loads of expensive technology, which, if damaged, is costly to replace or repair.
Bankruptcy is the first thought that comes to mind for people trying to avoid paying excess damages, but bankruptcy does not come without problems. It will probably hurt or even eliminate your chances of getting credit in the future; even if credit can be obtained, it will cost you a lot more and come with conditions.
Because the costs and lost opportunities that result from bankruptcy are significant, it's not an option most people want to or should choose. For that reason, let's instead look at your obligations and how to minimize your risk of having to pay for damages that higher liability limits could cover.
Consider the following example: You have an auto policy with a liability limit of $100,000. One afternoon, your car's brakes fail, and you rear-end the car in front of you with very high impact, paralyzing the driver.
Once the insurance company has paid your limit, it becomes your obligation to pay for further damages. In the example above, if the injured party is justified in asking for $3 million, your insurance company would pay the $100,000 for which you are covered, and you would then be expected to pay the remaining $2.9 million.
Alternatively, the injured party could take you to court, which could easily cost you hundreds of thousands in legal fees in addition to any judgment granted to the plaintiff. Even if you file bankruptcy at that point, if you have assets, you would have to pay what you have and possibly lose everything. Your wages also may be garnished to pay any judgment.
In any case, not having adequate liability, let alone minimum limits set by the state, is not really a solution.
What you can do
The smart choice is to opt for an auto policy with higher limits. Premiums in most cases are not significantly more for higher liability limits. Another option is an umbrella policy, which is available in increments of a million dollars that would cover liability for all the vehicles in your household for one low premium.
With such options available, why risk damaging your future with bankruptcy or, worse yet, losing everything you own because you did not plan to set up coverages that would protect you?
It doesn't cost you anything to discuss the options with us. For example, we can walk you through the various options for increasing your auto policy's liability or secure an umbrella policy that would cover your entire household, as well as other non-auto related liability claims, such as someone injuring themselves at your home.