How Assets Affect How Much Auto Insurance To Buy

The amount of your assets should impact your auto insurance with your liability and other types of coverages―but in different ways.

 

Personal Injury/Property Damage Liability

As counter intuitive as it may seem, the wealthier you are, the more liability car insurance protection you should have.

Why?

Let's say you have $100,000 of bodily injury coverage. You also own a home worth $850,000, and have a large retirement account.

But, you're found guilty of causing a serious car accident that badly injures several people. You exhaust your bodily injury coverage, and still owe $375,000. The injured parties could win in court, and seize your house or decimate your savings to account for the rest of the money owed to them. Having more liability insurance helps protect your assets.

Meanwhile, if you don't have many assets, it would make it more difficult for the injured parties to collect on a successful lawsuit.

So, the more you have to lose, the more liability insurance you need.

Just to review, bodily injury liability or personal injury liability insurance covers the medical-related expenses you cause to others, while property damage liability pays for the expenses to repair or replace other individual's property.

 

Other Types of Car Insurance Coverage

When dealing with other kinds of auto insurance protection―such as comprehensive, collision, and medical payments coverage―you can reverse everything you read in the preceding section.

If you have a lot of assets, you can usually get away with carrying lesser amounts of these types of protection. That's because you're better equipped to absorb the cost of expensive car repairs/replacements, thefts, and out-of-pocket medical expenses. And, you won't have to worry about lawsuits.

Meanwhile, if the thought of a gigantic body shop bill leaves you queasy, it's smart to carry an adequate amount of collision and comprehensive coverage. The same goes with medical payments coverage if you can't stomach paying your insurance deductibles and co-pays after an accident, or your health insurance coverage is lacking.

 

Important Auto Insurance Notes

Even if you don't have a lot of assets to protect, you should carry as much as auto insurance coverage as you can reasonably afford. Doing so could still save you from financial stress, and give you some sense of security.

Also, keep in mind that insurance becomes progressively less experience the higher the coverage limits. In other words, $300,000 of bodily injury insurance won't be triple the cost of a $100,000 policy.

Those who do have a lot of assets to protect should consider investing in an umbrella policy. This type of insurance coverage kicks in after you've exhausted the limits of your car insurance or homeowners policy, and provides an additional layer of protection from expensive lawsuits or damages. Some financial gurus recommend carrying at least enough coverage to equal the amount of your assets.