When money is tight, you may consider cutting costs by raising your car insurance deductible and even lowering your coverage. Not having adequate car insurance can cost you much more than you may be saving. If you own a home or have other assets, you have a lot at stake. Insurance protects you and your property from potential claims if you are the at-fault driver in an accident.
How Liability Insurance Works
Even the most cautious driver is at risk of hurting others on the road. Liability insurance is designed to offer protection to the other drivers you may injure. The amount of liability coverage you carry is the maximum amount an insurance company will pay per accident. Knowing your assets are protected provides peace of mind.
The amount of coverage drivers are required to maintain varies among states. Maine has the highest coverage requirements, 50/100/25, in thousands, according to Edmunds.com. The first number indicates the amount of liability coverage per person in an accident, the second number represents the total amount of liability coverage for all injuries in an accident involving more than one person, the third number is the amount of property damage liability coverage in an accident. The majority of states require at least 25/50/25 in liability insurance.
Umbrella Insurance Policies
Auto policies limit the amount of liability insurance you can purchase. If you are involved in an auto accident that results in serious injury or even death to the other party, you may be sued beyond your policy limits. Just as an umbrella provides protection when you encounter an unexpected rainshower, umbrella insurance policies protect you from lawsuits exceeding your traditional policy. An umbrella insurance policy is used to extend liability limits up to an additional $10 million. This type of insurance offers bodily injury protection, property damage protection and additional types of liability protection not covered under a traditional insurance policy.
An insurance policy should be tailored to ensure your home and other assets are protetced. Ideally, the policy will shield your entire net worth. To determine your net worth, add up the value of all assets, such as your home, bank accounts, retirement accounts, jewelry and vehicle. Subtract your liabilities, including a mortgage or credit card debt, from your assets. The result is your net worth. As your finances change, update your insurance policy to refletc the changes.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.