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Increasing liability coverage for the best auto insurance protection comes cheap

By Posted : August 29, 2017

When it's time to cut costs, people often look to their auto insurance as a way to save. That's usually not a wise decision.

Sure, cutting your auto insurance coverage may save you some money, but it could also cost you much more if you're in an accident.

Take liability insurance as an example. Liability insurance coverage can protect you from financial ruin. A few extra dollars will make sure your home and family are protected.

Nearly every state requires liability car insurance. New Hampshire doesn't demand car insurance, but does require proof of financial responsibility if you're in an accident.

Liability car insurance includes bodily injury liability (BI) and property damage liability (PD). BI protects you if you're at fault for an accident that causes bodily injury to the other driver, passenger, pedestrian, bicyclist or a motorist. In addition, BI coverage pays for medical expenses of the other person, funeral expenses, loss of income and pain and suffering.

PD protects you if you crash into someone's property, including their vehicle, fence, yard or home. Liability insurance also covers you if you're sued after the accident.

Most states require you have at least a minimum amount of liability insurance, but that's usually not enough. Industry experts suggest you have at least $100,000 of bodily injury liability protection per person/$300,000 for bodily injury per accident/$100,000 for property damage (100/300/100).

Liability insurance works this way. Let's say you get into an accident and a person in the other vehicle suffers $100,000 worth of injuries. If you have liability insurance for BI of $100,000, you have nothing to worry about. If you instead went with your state minimum, you would need to pay the difference.

Here's another example. You are at least partly to blame for a crash that results in a car striking a home. Having the state minimum likely wouldn't be enough to cover the damages.

PD claims are much more common. Nearly 4 percent of drivers with liability insurance had a PD liability claim compared to less than 1% had BI liability claim.

However, PI claims are much higher. According to the Insurance Information Institute (III), the average liability claim for bodily injury was $17,024 in 2015. The average liability claim for property damage was $3,493. Compare that to the average collision ($3,350) and comprehensive insurance ($1,671) claims and you see how skimping on liability insurance is a mistake.

You can get liability insurance well beyond the state minimum or even an umbrella policy that can cover you up to $1 million to $5 million. Why would you need a $1 million umbrella policy? Jury Verdict Research said that 13 percent of personal injury liability awards and settlements reach at least $1 million. III estimates a $1 million umbrella policy usually costs between $150 and $300 annually.

 

Why do you need more liability coverage?

Buying cheap liability insurance isn’t always the most financially sound strategy -- cutting back on your liability insurance can lead to financial ruin.

If you reduce comprehensive and collision coverage on your vehicle, you could wind up paying more for repairs. That's nothing compared to falling short on your liability insurance.

Imagine you're at fault in an accident and the people in the other car are seriously hurt. There are multiple people with hefty medical bills and they sue you. If you had cheap liability insurance, the minimum liability coverage needed to drive legally, you would need to pay a large amount in a settlement or court ruling. The right level of liability insurance would protect you from huge bills.

An example using California minimum requirements. 

You are distracted and plow into a car with four occupants. They are all injured and have medical bills of $30,000 each, and the other driver’s new car is totaled.  You have only a bare bones California car insurance policy of 15/30/15. Your policy will have to divide up the $30,000 maximum bodily injury payout among the four injured parties, leaving you liable for $90,000 of medical expenses.  The new car is valued at $28,000, so after your insurer pays $15,000, you will be responsible for the $13,000 balance.  You are now on the hook to pay out-of-pocket the $100,000 in medical expenses and car damage.  If you had the recommended coverage of 100/300/100, it would have taken care of all the medical bills and the damaged car with you and your assets being protected.

There are other reasons why you need the right level of liability insurance:

  • Accidents are on the rise. The National Safety Council said preliminary figures show that fatal accidents increased by 6 percent in 2016, which is the most since 2007.
  • A better economy and lower gas prices. These two factors mean more people are getting on the road.
  • Distracted driving is more of a problem. The Governors Highway Safety Association said 10 percent of all fatalities on the road in 2015 were caused by distracted driving.

A good economy, lower gas prices, and distracted drivers lead to a greater likelihood of accidents.

More accidents mean more costs for auto insurance companies, which insurers pass onto policyholders in higher premiums. Insurance companies are paying out more on claims and the average direct combined loss ratio for the top 10 insurance companies is now at 107.1 percent. This means they're losing 7 percent more than they earn in premiums. Insurance companies, in turn, need to increase premiums to make money.

Also, the average new car costs more than $30,000 and cars being built today cost much more to fix than vehicles from a decade or two ago. One more piece -- medical costs continue to rise each year.

All of this points to one thing: getting the right liability insurance is critical. It protects you if you're at fault and won't leave you needing to sell your house to pay for legal fees.

 

Don't skimp on liability auto insurance

When looking for ways to save, it's not a good idea to look at liability insurance costs as a source for cuts. Consider the following, based on Insurance.com’s analysis of rates from up to six major insurers for nearly all ZIP codes:

  • The nationwide average cost for state minimum liability coverage is $526
  • Increasing that coverage to $50,000/$100,000/$50,000 averages only $561. So, you only pay another $35 a year by increasing your coverage.
  • If you increase that to $100,000/$300,000/$100,000 with comprehensive and collision and a $500 deductible, that average goes up to $1,350, which is $824 more per year or $69 per month.

Compare that to the average property damage claim ($3,493) and personal injury claim ($17,024). PD liability claims are one of the most common claims -- more common than comprehensive claims, so make sure you're protected.

Here is how much more you will pay for increasing your liability insurance coverage for each state:

StateState minimum average rate100/50/100 average rate$ Difference from state min to 100/50/100% difference
Alaska $318 $323 $5 2%
Alabama $419 $432 $14 3%
Arkansas $397 $416 $19 5%
Arizona $496 $573 $77 16%
California $491 $592 $101 21%
Colorado $506 $544 $38 7%
Connecticut $761 $868 $107 14%
DC $745 $809 $65 9%
Delaware $805 $904 $99 12%
Florida $884 $930 $46 5%
Georgia $532 $577 $45 9%
Hawaii $555 $609 $54 10%
Iowa $294 $323 $29 10%
Idaho $319 $343 $24 7%
Illinois $383 $403 $21 5%
Indiana $400 $424 $23 6%
Kansas $397 $427 $30 8%
Kentucky $745 $793 $48 6%
Louisiana $705 $831 $126 18%
Massachusetts $539 $609 $70 13%
Maryland $710 $748 $38 5%
Maine $359 $364 $5 1%
Michigan $2,012 $1,649 -$363 -18%
Minnesota $579 $575 -$4 -1%
Missouri $409 $457 $48 12%
Mississippi $398 $425 $27 7%
Montana $323 $356 $33 10%
North Carolina $347 $383 $36 10%
North Dakota $363 $372 $9 2%
Nebraska $329 $344 $16 5%
New Hampshire $485 $508 $24 5%
New Jersey $677 $779 $102 15%
New Mexico $424 $445 $21 5%
Nevada $623 $768 $145 23%
New York $812 $879 $66 8%
Ohio $383 $381 -$2 -1%
Oklahoma $444 $461 $17 4%
Oregon $690 $702 $12 2%
Pennsylvania $480 $526 $46 10%
Rhode Island $751 $876 $125 17%
South Carolina $484 $525 $41 8%
South Dakota $267 $290 $23 9%
Tennessee $404 $430 $26 7%
Texas $465 $488 $24 5%
Utah $531 $545 $13 3%
Virginia $372 $409 $37 10%
Vermont $337 $350 $13 4%
Washington $466 $503 $38 8%
Wisconsin $373 $415 $42 11%
West Virginia $493 $545 $53 11%
Wyoming $339 $360 $21 6%

*Methodology:

Insurance.com commissioned Quadrant Information Systems to field rates from up to six major insurers in nearly every ZIP code of the country for three coverage levels. We’ve averaged rates here for state minimum liability limits and for $50,000 per person injured in an accident; up to $100,000 per accident, with $50,000 in property damag, by state for the driver profile of a 40-year-old male, 2016 Honda Accord, with good credit and no accidents.

More liability coverage is cheaper than state minimum in rare cases: Why is that?

In rare cases, the cost for higher liability limits can be less than for bare-bones coverage, depending on your prior coverage level history. That's because in some states, a handful of insurance companies take into account the amount of coverage you had before buying or renewing your policy. If you had higher liability limits in your past, the insurer considers you less of a risk, and therefore you get a lower rate.

For example, if you have minimum coverage, and then buy another state minimum policy, you won’t get a price break. The same is true if you have state minimum limits and then go to higher limits, of say, 50/100/50. But if you had 50/100/50 previously and then buy another 50/100/50 policy, you do get a price break because you had more than the state minimum in the past. So the cost of your policy would be less than the cost for a driver with state minimum buying another state minimum policy.  

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