By Ryan Stueber January 2019
Liability Insurance- how do I know if I have enough?
One sunny day you are driving along a road that you’ve driven many times before. You slow and prepare for a right hand turn into a parking lot but fail to notice the bicyclist riding along in the bike lane next to you. As you turn, the cyclist is unable to stop and crashes into the side of your car, causing significant head and chest injuries. As much as you are concerned that he will be ok, as he is carted off in the ambulance you can’t help but wonder, “Is my Auto Insurance going to cover this?”
One of the biggest financial risks that we rarely consider as we go about our daily lives is a liability lawsuit from an auto accident. As we can see from the example above, it only takes a moment’s inattention to have life altering implications. With medical costs skyrocketing and more and more people hiring personal injury attorneys after an accident, it is more important than ever to review the Liability coverage on your Auto Insurance Policy.
The State of Washington only requires Liability Limits of $25,000 per person, and up to $50,000 per accident on an Auto Insurance policy. That may seem like a lot but if you’ve been to the hospital or had any kind of medical care, you likely know just how fast 25,000 can be used up when treating an injury. In a hospital or major medical clinic that amount could be used up in less than a day!
Once the Liability Limits on your auto insurance policy have been exhausted and all used up, the insurance company has done their part on the claim and steps out. The remainder of any financial burden lies with you. If the injured party chooses to sue, they can be entitled to many of your assets such as money in bank accounts, your vehicles, and your home. In some situations, your wages can also be garnished as well. Question now is what do you do about it….
How much Liability Insurance should I carry to protect myself?
The simple answer is: as much as you can possibly afford. The good news is that increasing the Liability Limits on your Auto Insurance policy is often less expensive than you think. Going from $100k per person to $250k per person often only raises your monthly rate by around $10.
In the example above, even $250,000 could be quickly exhausted however, which is why we often recommend an Excess Liability or Umbrella policy.
What is an Excess Liability? What is an Umbrella policy?
These types of policies are designed to come into play when your other policies exhausted. Liability Umbrella is designed to cover an additional $1,000,000 or more over all of your underlying policies such as your Auto and Home Insurance and protect your assets in the event of a lawsuit.
Let say that in the example above, you had Liability Limits of $250,000 per person on your Auto Insurance policy. After all is said and done, the cyclist’s injuries and rehab cost a little over $650,000. That would leave you potentially on the hook for $400,000. If, however, you have a Liability Umbrella policy of $1,000,000, the Umbrella would then kick in to cover that additional $400,000 along with any additional legal fees up to the limits of the Umbrella.
How do I know if I should have an Umbrella policy?
Easier to answer this way: there isn’t anyone who doesn’t need one. Sometimes people think things like; I’m just starting out I don’t have any assets yet; or I’m not working right now; or my house isn’t worth too much, etc. etc. No matter what you have now, just consider if it were taken away. No matter what you have now, just consider if the money you earned everyday at your job was only partially paid to you and partially paid out to a settlement. Almost all of us have something to protect. Consider whatever assets you do have, including your future earnings (remember the wage garnishment), you should seriously consider a Liability Umbrella policy. The cost is often only $20-$30 per month for $1,000,000 which is quite reasonable given the amount of coverage.
For me personally, having a Liability Umbrella policy is very similar feeling to having Life Insurance. It’s a relatively inexpensive way to ensure that my family and assets are protected in the event of a worst case scenario type of loss. I can honestly say that I sleep much better at night knowing that I have myself and my family fully protected.