Liability Limits: How Much Is Enough?

Liability coverage is the part of an auto policy that protects other people from harm you cause, and protects you from the financial fallout. It is also the part most likely to be described in a confusing string of numbers. Once you can read those numbers, choosing your limits becomes a calm, practical decision.

Reading the three numbers

Liability limits are usually written as three figures separated by slashes, in thousands of dollars. Take 50/100/50 as an example:

• 50: up to $50,000 for bodily injury to any one person in an accident you cause.
• 100: up to $100,000 total for bodily injury to all people in that accident.
• 50: up to $50,000 for property damage in that accident, such as other vehicles, buildings or fences.

Some policies instead use a single combined limit, such as $300,000, which can be used for any mix of bodily injury and property damage from one accident.

What happens when limits run out

Your insurer pays covered claims up to your limits and typically also pays for your legal defense. If the costs of an accident you caused exceed your limits, the injured people may seek the remaining amount from you directly. That could put savings, future wages or other assets at risk, depending on your state's laws. Higher limits reduce the chance of that happening.

State minimums are a floor, not a recommendation

Nearly every state sets minimum liability limits. Some are quite low, such as $25,000 per person for injuries and $10,000 to $25,000 for property damage. Those minimums were often set many years ago, while medical costs and vehicle prices have risen considerably. Today, a single hospital stay can exceed a low bodily injury limit, and many new vehicles cost more than a low property damage limit. Meeting the minimum keeps you legal. It may not keep you protected.

A calm way to choose

Think about what you have to protect

People with savings, home equity or significant income often choose higher limits, because they have more at stake if a judgment exceeds their coverage. One common approach is to consider at least 100/300/100 as a starting point when you can afford it, and higher limits if you have substantial assets. Your own situation should guide the final number.

Look at the price difference

Raising liability limits often costs less than people expect, because the most expensive claims are relatively rare. Ask to see your quote at two or three different limits. The difference between minimum coverage and much stronger coverage is sometimes smaller than the difference between two deductibles.

Match your own protection

Your uninsured and underinsured motorist limits are often set to match your liability limits, and some states do not allow them to be higher. Raising liability can therefore raise the ceiling on the protection you carry for yourself. See our uninsured motorist Teaching for more.

Umbrella policies

If you want protection beyond what an auto policy offers, a personal umbrella policy can add liability coverage on top of your auto and home policies, often in increments of $1 million. Umbrella insurers usually require you to carry certain minimum liability limits on your auto policy first, such as 250/500/100. If you are considering an umbrella policy, ask what underlying limits it requires before you set your auto limits.

Common misunderstandings

• "Full coverage" is not a defined term. People often use it to mean liability plus collision and comprehensive, but it says nothing about the limits. A "full coverage" policy can still carry minimum liability limits.
• Liability does not pay for your own car or your own injuries. Those come from collision, comprehensive, PIP, MedPay and UM or UIM coverage.
• Limits apply per accident. If several people are hurt, they share the per-accident limit.

The calm view

Choosing liability limits is choosing how much of a worst day you want to carry yourself. There is no single right number. There is only the number that fits what you have, what you can afford, and how well you want to sleep.

This Teaching is general information, not legal, tax or financial advice. Coverage rules, requirements and options vary by state and by policy. Always read your policy documents. Car Insurance Buddha is not an insurance carrier, agency, or broker.