When Is It Worth It to Pay for More Liability Coverage?

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Every driver must carry his or her state’s minimum limit of liability coverage. This consists of coverage that protects other drivers, vehicles and property than your own in the event of a collision you cause.

Depending on who you are, what you own, where you live, and where you drive, you might need a higher bodily injury or property damage limit than your state requires. “But why should I pay more than I need to?” you ask? Trust us, it matters! Properly covering yourself (based on factors like your assets and your zip code) could save you from a lawsuit, lost wages, or even losing your home.

So how do you determine what the right limit is for you? We’ve worked with The Zebra’s own licensed insurance agent and adviser Neil Richardson to break it down.

why do you need more liability coverage

Liability Coverage Explained

Most liability policies are written denoting the maximum amount an insurer will pay for bodily injury (BI) both per person and per crash, and property damage.

A policy written as “100/300/100,” for example, represents the bodily injury (BI) coverage per person/BI total coverage per crash/total property damage coverage per crash – in thousands of dollars. So the maximum amount your insurer will pay for a single person’s injuries in an at-fault crash would be $100,000; the maximum payout per crash for bodily injuries would be $300,000, and the maximum payout for property damage would be $100,000.

Another wrinkle: combined single limit (CSL) versus split limit policies. The above 100/300/100 is an example of a split limit policy (the dollar amounts are split for each type of coverage). Some insurers (usually the big national carriers) might also offer a combined single limit policy, which would apply to all collective claims for bodily injuries and property damage, without segmenting (or splitting) them.

Each state sets different minimums of liability (and insurers may offer different options), but the common breakdowns include:

  • $50/$100/$50
  • $100/$300/$100
  • $100,000 combined single limit
  • $250/$500/$100
  • $500,000 combined single limit (this is the highest liability coverage available from most insurers; for drivers looking for more coverage, an umbrella policy might be the right choice)

Want to raise your limit? How much each increase will cost depends both on the insurer and where you live, but increasing liability coverage usually doesn’t drastically increase your rate, and it offers much more protection than the state minimum, Neil explains.

If your liability coverage is too low to cover the other party's claims from a crash you cause, they could sue.

How Much Liability Coverage Do You Need?

So how do you know how much liability insurance you need to be reasonably sure your insurance will cover any property damage or injuries you cause while driving?

We wish we had a simple answer, but alas, you’ll have to assess your environment and your assets and decide for yourself (or with the help of an insurance agent). How to begin:

  • Consider where you live: Repair costs differ by state and zip, as do vehicle values. If you regularly see expensive cars where you drive, you might consider paying more for higher liability limits because if you damage one, you could be on the hook for quite a lot of money.
  • Consider what you own: If you own a house or other property, it could all be at stake if you cause damage or injury and your insurance doesn’t cover all the bills (more on this below). You’ll want insurance coverage to protect all of it, either through liability coverage or an additional umbrella policy.

Note: Some insurers might have their own liability minimums

We spoke to one New York City agent who works for a national carrier who said, “I never write policies with liability coverage for property damage under $15,000, even though the state minimum is $10,000.” According to this agent, the property damage claims in the New York City area average $13,000. (Keep in mind that each insurer in each zip code will have their own numbers).

when do you need more liability coverage

Other Benefits of Extra Liability Coverage? Pay Less in the Future

Our latest research revealed that drivers who have a long history of continuous and higher-level insurance coverage will, over time, pay less for their policies than someone without that history.

For example, drivers with a five-year history of carrying $100,000 of bodily injury coverage per person and $300,000 per collision can expect to pay an average of $184 less per year for the same new insurance policy as someone with no history of insurance coverage. The only exception is for residents of California, the only state that doesn’t consider insurance history when determining premiums.

Assets at Stake: What Happens When Your Liability Coverage Doesn’t Cover Your Claim?

If your liability coverage isn’t enough to pay the bills (medical or repair) for the other party in an at-fault traffic crash, the other party could sue you to recover the difference and your other assets, and even your future wages, could be at stake.

As always, though, the rules vary by state. In some states, it’s entirely legal for the court to put a lien on your property or to garnish your wages, while other states have more restrictions.

In Texas, for instance, even if you’re sued as the result of an at-fault crash or otherwise, you can’t lose your homestead through court litigation – as is the case in many states. (A “homestead” is a person or family’s primary residence.) Only three states – Maryland, New Jersey, and Pennsylvania – have no homestead exemptions which protect at least part of a home from creditors.

However, if you can’t afford the court’s decision, and if your wages are therefore garnished, you could have trouble making your mortgage payment. In that case, you might have to sell your home or file for bankruptcy, which means your home actually could be at risk, though not directly.

State-by-state details for bankruptcy and creditor exemptions can be found here.

How Does Liability Fit into Your Auto Insurance Policy?

We’ve talked a lot about liability coverage, which is one of the few types of car insurance coverage required by most states in the U.S. Currently 31 states also legally require drivers to carry uninsured motorists coverage as well. But there are several other components of your auto insurance policy you might opt for, depending on the kind of driving you do and the kind of car you have:

  • Collision coverage: Coverage for repairing your vehicle after damage you’ve caused. So, if you are found to be at-fault in a collision, your liability insurance will pay for the other party’s injuries and property damage, but if you want yours covered, too, you’ll need to add collision coverage to your policy (even in no-fault states).
  • Comprehensive coverage: Protects you from a variety of incidents not covered by collision, like theft, weather damage, vandalism, or hitting an animal. (In most cases, you can have comprehensive without collision but not collision without comprehensive.)
  • Personal Injury Protection: Provides medical expense and loss of work coverage for you and your passengers, regardless of fault.

do car insurance "extras" save you money?

Final Tip: Factor Your Deductible into Your Emergency Fund

Liability coverage doesn’t come with a deductible, so if you have high limits of liability coverage you can feel reasonably comfortable that you won’t have to cover these types of expenses. 

However, most comprehensive and collision auto insurance coverage options have between a $500 and a $1,000 deductible, so keeping the total cost of your deductible in an easily-accessible emergency fund (and designating the funds specifically for this purpose) is important.

When you’re shopping for auto insurance, all the add-ons can really raise the price of your premium, so as always, it’s important to get quotes from several different car insurance companies and compare rates. In our opinion, the peace of mind that comes with paying a little more each month for extra liability coverage that can prevent lawsuits and loss of assets is worth it, but each driver must consider his or her own situation and make that call.