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My auto insurance policy is up for renewal soon, and I want to make sure I have the right amount of liability insurance.

Currently we (my husband and I) have liability coverage for $100,000 per person/$300,000 per incident. A general rule of thumb according to several sites, like this one, is:

Make sure you’re covered for an amount equal to the total value of your assets (Add up the dollar values of your house, your car, savings and investments).

When I add up our total assets (savings plus the equity in our house) I get about $110,000. If I include retirement savings that goes up to $150,000. That puts me right above the $100,000 per person limit but well below $300,000 per incident limit.

Is a $100,000/$300,000 policy adequate coverage or should we be bump up to the next coverage level ($250,000/$500,000)?

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    Oh? And how much does several million dollars worth of liability insurance cost? Are you sure those sites aren't run by people selling insurance? – jamesqf May 13 at 3:40
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    @jamesqf Not much. Last time I priced it, going from $300k to $1M was on the order of $40 a year, roughly +10% cost on the liability component for a 333% coverage increase. Cost scales sublinearly to coverage. The larger the claim, the more infrequent it becomes; the person who's suing you still has to prove in court that you caused that amount of damage. $1M is typically the max on an auto policy anyway. – user71659 May 13 at 4:08
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    Answer to your question can vary by state. Which state are you in? – Hart CO May 13 at 14:52
  • @user71659: Going from $300k to $1M, perhaps, as one would expect the increase to be asymptotic. But going from $25/$50K (the legal minimum in my state) to $300K? – jamesqf May 13 at 16:42
  • @HartCO We are in Wisconsin. – lizziv May 13 at 17:38
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This is a great question and is an area that many people have difficulty with as they start building assets. Judging by the stats you state, you and your husband are well on your way to becoming every day millionaires. The people that are talked about in the book A Millionaire Next Door. Good work, keep it up!

The first thing you need to do is to figure your net worth. That is assets minus liabilities. If you own your cars out right (no payments) then it would add to your ~250K total.

Your homeowners insurance adds about another 300k to your liability, but please check your policy. This is general liability coverage because the home owners insurance protects not only you, but also the bank.

Once your net worth gets around the 600k to 700k mark you need to start thinking about an umbrella policy. They run about 350 per year to add another 1 million in general liability. That is pretty cheap for a lot of protection. You want to do this a bit sooner than later as it takes a while to get it all in place.

The conclusion is that you are good for now, but check on your home owners insurance policy for your liability limits. Carrying 600K worth is plenty for you at this stage of the game and is not very expensive.

  • Im genuinely curious about this, as a UK expat living in the US, my insurance liability cap used to be over GBP20,000,000, here the most I could find is USD500,000. I thought the insurance was to protect ones assets in case of a large legal claim. Are large claims just rarer in the US or is there simply not a way to protect ones assets from very large liability claims (thinking of many millions in damages)? I only have a few hundred thousand in assets but would still rather not lose it (and potentially future earnings too) to a large claim. – Vality May 13 at 17:43
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    @Vality You're looking at the wrong policies. Due to state regulation, homeowner's and automobile liability has a maximum at $500k-1M, typically. You need to get a separate policy, called umbrella insurance. Those definitely go up to multiple millions. – user71659 May 13 at 18:38
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That rule of thumb is dumb. Seriously. What if you by accident hit a bus of people that need half a year of rehabilitation? You end up not only causing damage by not paying, you also end up loosing everything. Because your liability is NOT limited to your assets. You own 200k, have 200k insurance, damage is a million - the 200k insurance will not protect your 200k in assets. Done.

You should bump up to a sensible coverage. What is sensible? Ah, here we go.

EU minimum liability is in millions. Literally. Because yes, freak accidents happen and are EXPENSIVE. And that is in an area with way cheaper health care than the USA. Given how low premiums are (as per comment by user71659 - you are grossly neglecting not using the maximum.

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    Note the US tag. In the US debts caused by negligence are a civil matter and can usually be discharged in bankruptcy. That's why they say to insure up to your assets. How the EU handles it is not relevant. – user71659 May 13 at 6:11
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    Ah, but debt is debt. The whole point is that the argument in the op of insuring in the value of your assets is irrelevan because if the damage is higher tthan insurance, the assets are STILL gone. Btw., I can always ague it is gross neglect, not normal negligence. – TomTom May 13 at 6:13
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    You have a home worth half a million, and insurance for half a million. You cause a million damage. Your insurance pays half a million, your home is auctioned off for another half million, then you have nothing and can declare bankruptcy. – gnasher729 May 13 at 9:20
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    Yes. Problem arises from the comments in the top topic. Read the question, the quote marked, which says "Make sure you’re covered for an amount equal to the total value" - this makes ZERO sense. – TomTom May 13 at 9:22
  • @TomTom This answers a side-question I had (but didn't ask), which was "what happens if I'm insured for $X, but I cause $2X in damages?" However, it doesn't really answer the question of how much insurance is sensible to carry in the US. Are you suggesting that everyone should carry a million+ dollar policy? (I actually didn't see policies with coverage that high, so I'd need some convincing that amount of coverage is a common need here) – lizziv May 13 at 17:36

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