How much car insurance do you need?
This is a great question but one I bet most people don’t ask themselves. My guess is most people buy the bare minimum insurance coverage and never think about it again.
First, determine how much (and what kind of) insurance you have.
The thing is you really should consider how much insurance coverage you need because it could greatly affect your own personal assets if you were to cause a car wreck.If you drive a car, you obviously need to buy car insurance to legally drive on public roads.
But how much insurance coverage should you carry? My advice is that you first start with conducting a basic analysis of your own financial situation and figure out what your assets and liabilities are.
Do you own a home? If so, how much equity you have in it?
Do you own a business?
Do you have cash in bank accounts or stocks and bonds in brokerage accounts?
If the answer is “yes” to any of these questions, you will want more than the minimum levels of insurance coverage.
Second, you need to know how much insurance the at-fault driver has.
In Louisiana, drivers are required to maintain a minimum of $15,000 in insurance coverage per person, and $30,000 in coverage per accident.
For example, if you rear-ended someone and caused them exactly $15,000 in damages (e.g., $7,000 in medical bills and $8,000 in pain and suffering) you would be covered.
With the $30,000 “per accident” coverage, you get covered up to that point if multiple people are injured and file claims against you.
If you rear end someone and two or more people file injury claims against you, your insurance will cover you to a maximum of $30,000 per that accident.An Emergency Room bill for one injured person can easily exceed $15,000.
Remember, in Louisiana (as in most states) the at-fault party is responsible for paying the “medical specials,” which is lawyer-speak for actual medical bills, in addition to “pain and suffering” which is an intangible dollar amount assigned to the pain and suffering someone experiences after an accident.
Are my personal assets exposed if I cause a car wreck?
Let’s take the above example and say that you rear end a car with four occupants and they claim they suffered $50,000 in damages each (e.g., $25,000 in medical bills and $25,000 in pain and suffering).
These people could sue you for an “excess judgment” for the amounts over and above what your insurance policy paid them.
In that case, your carrier would tender $30,000 (divided up according to their agreement) and then you would personally have to pay them the balance. Meaning you would personally pay the difference between what your primary auto insurance policy covered and what was owed the plaintiffs.
This money might come from your personal bank accounts, brokerage accounts or result in a lien on your house or business.
Your LLC or other business might be subject to judgment too depending on whether you were in a company vehicle when the accident occurred, or if the plaintiff pierces the corporate veil through a variety of legal maneuvers.
While it is true certain assets are exempt from judgment if certain conditions are met (401(k) accounts, annuities, and certain other financial vehicles) it is not wise to solely rely on such protective measures.
This is why we recommend you buy the amount of insurance coverage commensurate with the amount of assets you have.
Consider buying an umbrella insurance policy.
Most automobile insurance carriers will sell a maximum of between $300,000 and $500,000 in liability coverage. If you need more coverage than that because you have more assets than that, you will need an umbrella policy which you can usually purchase through the same automobile insurer.
Most people are surprised to learn that the price of getting higher insurance coverage is not as expensive as they thought.
An umbrella policy can cost less than a thousand dollars a year and raising your limits from $15,000 to $300,000 might only cost $150 more a month. Call your automobile insurer and ask them about increasing your coverage and in buying an umbrella policy.
It’s also important to have a good driving record that is free from tickets and accidents to qualify for better rates.As for your home insurance, homeowners can adjust their personal injury limits as well.
In my experience, you usually must buy the highest level of personal injury coverage on your home to qualify for an umbrella policy. It doesn’t raise the homeowner’s policy premium significantly, but it will raise it some.
It is unusual in Louisiana to see a tort victim sue under a homeowner’s policy, although it does happen occasionally. The accident would have to happen at the person’s home and be caused by the fault of the homeowner in some way and not be subject to a statutory limitation of liability. I’ve read cases where this happened but it’s not the norm.
Uninsured and Underinsured Motorist Coverage — what you need to know.
One final matter you should consider is whether you are covered under an Uninsured or Underinsured Motorists Policy.
This coverage allows you to file a claim on your own car insurance policy if you are hurt by an at-fault driver, but the at-fault driver does not have sufficient insurance coverage to cover your damages.
For example, suppose someone makes a left turn from the right lane and turns into you and crashes. Now assume you go to the ER, then a chiropractor and rack up $30,000 in medical bills and lost time at work. But the at-fault driver in this case only has $15,000 in coverage.
If you purchased UM/UIM coverage from your own insurer, then you can file a claim with them, and they will pay the difference. The great news for you is that if you are not at fault in the accident, your insurance company is forbidden by law from raising your insurance rates.
Assess your entire financial situation to help you determine the right amount of insurance coverage.
It takes a little time and thought to determine how much insurance coverage you really need. It also costs a little more to buy higher coverage limits. The payoff is that if you ever are in an accident, or cause an accident, you have a much greater peace of mind knowing that you will likely have more than enough coverage to cover the claims stemming from the accident.
I am a personal injury lawyer who has had this conversation numerous times with clients after their accident. In those cases, they usually “cheaped out” and bought the lowest coverage policy they could and often did not buy UM / UIM coverage either. In those situations, there’s really nothing I can do other than tell them go out and buy better insurance coverage so you won’t be in this same situation if there is a next time!