How Much Liability Coverage Should You Carry?

Joe Robinson: I imagine that the roaring bull market has made a number of your readers rich (on paper anyway). I would like to see some discussion of how this affects the limits your reader should maintain on our automobile liability insurance (i.e. involvement in one accident where your reader is found at fault, and he could “lose the farm”).

As a fledgling engineer nine years ago, I bought insurance with 100k/300k limits on liability. I thought this was too high of an amount, but was assured by the agent that it was considered the “minimum” for a professional to protect his assets. Now with rising medical costs, a wage-earning spouse, a house nearly paid for, and a stock portfolio generally rising with the market, I wonder if this is enough.

A.T.: How rich you are has relatively little to do with the limits you need, Joe. If you had only 15 cents but wanted to protect it, then — in theory — you’d need as much coverage as if you had $15 million. Why? Because liability coverage isn’t geared to your net worth, it’s geared toward compensating people you hurt. So if they require $600,000 to patch them up (and replace their lost wages, compensate them for their pain and suffering, and so on) — or win it in court — you need $600K of coverage no matter how high or low your assets.

As a practical matter, though, it’s rare that a plaintiff in one of these cases tries to go beyond the insurance. If you have a $20,000 net worth, they’d take the $100K and probably (probably!) not try to get the rest.

But if you’re a rich doctor or lawyer, they’d expect you to carry more, and if you didn’t, might well sue you for it and go after a portion of your future income, to boot. So in that sense, the more affluent you are, the more coverage you need.

The 100k/300k coverage you refer to will pay up to $100,000 per person, with a maximum of $300,000 per accident even if you’ve mowed down an entire tour group. Since you do have assets to protect, you should have $250K/$500K coverage plus at least a $1 million umbrella policy.

Umbrella policies are usually cheap and cover you not just for jumbo auto liability claims but for other non-professional liability as well — like serving your guests tainted sushi (assuming you did it accidentally) or failing to clear the ice off your front steps. (Thud.)