Auto Insurance Limits: How Much Is Enough?
If you’re not inside the insurance industry, or haven’t had a liability claim, it may be difficult to conceptualize what auto insurance limits are enough.
In my days prior to working in the field, getting my own car insurance quotes from popular “direct writer” companies you see on television all the time (one of which may or may not have a gecko spokes-animal), I had to select my own liability limits. There I was, thinking that $50,000 per person, $100,000 per accident was a lot for bodily injury coverage.
If I just lost you, I apologize.
Then, I got into the field, and saw that not only is it NOT a lot, it’s well below what’s standard in many cases.
What’s “enough” insurance is a complicated question. It’s a matter of whether you’re a business or an individual as much as what state guidelines say. You must make the determination of what are appropriate liability limits for you. There are a few concepts to take into account and review with your agent or broker.
Commercial Auto Insurance Limits
On the commercial side of the house, the most typical liability limit is $1 million combined single limit, or “CSL.” This is bodily injury and property damage taken together You may be an electrician or HVAC company signing contracts requiring these amounts, and it’s unusual to see business auto coverage requested for less than this. That right there could be the determining factor in your business having $1 million in liability coverage.
If the company making you sign the contract has a good attorney, they will want the $1 million limit (and an umbrella). If you have no business vehicles, you can still get hired and non-owned auto liability, covering any cars your business rents, borrows, or leases, for example.
You can also do “split limits,” whereas bodily injury and property damage are treated separately. We created a list of state-by-state minimums that are required, and while they may seem like a lot of money, they’re not. For example, if you cause an at-fault accident in which a car with several occupants suffers serious injuries and/or fatalities, numbers can add up quickly. $20,000 of bodily injury coverage per person will only be a fig leaf in such a situation. In virtually all cases, state mandated minimums are woefully inadequate. They are intended to ensure all vehicle owners carry SOME insurance, but don’t go very far.
Going Over and Above
It’s also a good idea to carry umbrella coverage, if available. This will provide additional liability coverage over and above your auto insurance limits, and may even expand the scope of coverage. Many insurance companies will require a $1 million liability CSL before sitting over the auto policy with an umbrella. Meaning, if you have a business with $20,000/40,000 bodily injury liability limits, good luck getting an umbrella or excess policy.
Remember, the umbrella applies to liability coverage; you’re on your own with collision and comprehensive coverage.
A wise thing to do would be to carry the most liability insurance coverage you can and then add an umbrella. The more the better to protect your business in the event of a claim or a suit.
Personal Auto Insurance Limits
In personal auto insurance, split limits are generally what we see. Just as in commercial insurance, state mandatory minimum limits aren’t much. Don’t be fooled into thinking $250,000/500,000 for bodily injury liability coverage is going to be super expensive. Everyone’s situation is different, but it’s probably not going to cost you two grand extra to bump up your limits from $50,000/100,000. In many instances, it’s far less.
While you’re not signing business contracts that tell you the coverage you need for a job, this is still an important matter to consider. Higher limits are always preferable.
Many homeowners and auto carriers offer personal umbrellas. For perhaps even a few hundred dollars a year, you can increase your auto liability coverage beyond your policy’s limit.
The Bottom Line
Your insurance agent or broker can help you determine what auto insurance limits are “enough” for you. The truth is, you don’t know what “enough” will be until you have an accident. Hopefully, you never will, but if you do, higher is always better.
You don’t want to be that guy (or gal) who deleted your agent’s emails suggesting you buy more insurance, then wishing you had done it. When in doubt, consult your agent or broker for a quote.