Monday, December 31, 2007

Thoughts on Insurance Part 1: Liability Limits

First off, please read the disclaimer at the bottom of this page and know that I am not an insurance agent and that every state has different rules and regulations.

I used to work in the personal (auto and home) industry, and a recent post by Mrs. Micah made me decide to share some things I learned. Please note that I do not benefit in any way by sharing this opinion with you and that it is only an opinion!

Liability Limits
One of the biggest mistakes I saw while working in the insurance industry is that most people do not have high enough liability limits. This seems to be particularly true of younger people. In general, older folks (read: people with a higher net worth) realize a bit more how much they have to lose. Younger people don't realize that their biggest asset is at risk if they get sued. And what is this asset you should be so worried about? Future wages. If you were to get sued, either because you were the cause of an auto accident or because someone fell and got a concussion on your icy front porch, your wages could be garnished for the rest of your life. Not cool. Especially if you're 25 years old. That's up to 40 years of garnished wages. Yikes!

What is Liability Coverage?
Liability coverage typically pays the people you’ve injured for property damage, loss of services, bodily injury, sickness, medical services, disease, loss of income and death.
Let's look at an example to explain. Let's say that you come over to my house to help me put Christmas lights on the outside of my house. I let you climb onto my rickety old ladder, which breaks and you fall. You get injured and end up in the hospital. Your lawyer encourages you to sue me and convinces the courts that I was negligent for letting you on my rickety ladder. The judge decides I owe you $200,000 for medical bills, pain and suffering. Where I am going to come up with $200,000? Luckily, I have homeowners insurance. My insurance company writes you a check and we're friends again. You can bet I won't be calling you next Christmas to help me with my lights, though ;)

Liability Limits and Deductibles
The ridiculous thing is, people often look at decreasing their deductibles before they look at increasing their liability limits, especially on their autos. How short-sighted is that? They decrease their deductible from $500 to $250 (saving them $250 if they file a claim) instead of increasing their liability limits from $25,000 (minimum for auto insurance in my state) to $100,000 (a potential savings of $75,000 in the event of a claim).

Please increase your liability limits as much as you can afford, on both your home/renters insurance and your auto insurance. My husband and I have the highest coverage we can get without getting an umbrella policy ($500,000 on both our auto and our home policies). It is usually surprisingly inexpensive. I think the difference between choosing a $500,000 liability limit versus a $300,000 liability limit on our home was about $7 a year!


Mrs. Micah said...

*blush* So you mentioned this in an e-mail to me which I saw just as I was deleting 25 spam comments around it...but it was too late. Somehow it got into my spam folder. Could you resend it? *blush*

One of my goals in the next few years is to get a big umbrella policy. As it is, our coverage is decent.

Becky said...

I'd like to get an umbrella policy in the next couple of year, too. They are super-cheap!

Avery Gerner said...

Before considering a business insurance, you must know the nature and capacity of your business. The bigger your company, the higher the liability coverage you need.