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Deciding the Right Liability Coverage for Your Auto Insurance Colorado
Posted by Leinweber Insurance Agency on
Is Your Auto Insurance Protecting Your Net Worth?
Discover If Your Liability Limits Are Enough To Cover Your Assets
Have you calculated your net worth recently? It’s not just something wealthy business owners do. Calculating your net worth is something everyone should do, especially if you drive a vehicle. And unless you live in the very heart of downtown Denver, you probably do!
Picture this: You’re driving home from work on I-25 and suddenly the car in front of you slams on their brakes. You react quickly, but you had a long day. You accidentally hit the car and crumple their rear-end.The person you rear-ended has back issues from a previous injury, so she has to be taken to the hospital in an ambulance. In addition to her emergency room visit, she will have to go to the chiropractor at least once a week for the next 6 months. After the initial emergencies are dealt with, you call your insurer and the agent informs you that after the ambulance ride, 2-night ER visit, and pain medication, your policy may not cover the other drivers’ chiropractic visits and follow-up appointments. So what now…? Could you have chosen better insurance coverage to help protect you?
What Exactly Is Net Worth and Why Does It Matter?
Calculating your net worth is the best way to determine what kind of coverage you need when choosing auto insurance. Net worth simply means to add all your assets to all your liabilities. In other words, subtract what you owe from what you own. This shows you the amount of money you would have left over if you were to pay off all your liabilities.
Some common examples of assets include1:
Your checking account
Your savings account
The market value of your home
The market value of your vehicle
Your investment accounts (including retirement, HSA, etc.)
Personal owned items (such as jewelry, silverware, or firearms)
Some common examples of liabilities include1:
Credit card debt
Student loan debt
Vehicle loan debt
Determining your net worth is useful for a variety of reasons. Not only does it show your current level of financial health (and allow you to make changes from there) – it also helps you determine the liability limits you should select on your auto insurance policy.
Liability Limits and What They Mean To You
Did you know you have options when choosing liability limits? In Colorado, the state minimum liability limits are 25/50/25. Let’s break this down. (And by the way, we never recommend choosing the state minimum limits.
The first two numbers are related to bodily injury. The first 25 means if you cause an accident and injure people, your auto insurance will pay up to $25,000 in medical bills per person.
BUT! There’s a catch. The second number – 50 – is the limit paid per accident. So if you cause an accident that injures 3 people, and each person’s medical bills amount to $25,000 (not hard to do in the U.S. healthcare system), then your auto insurance policy would ONLY cover up to $50,000 worth of medical bills, or $25,000 per person. You would be on the hook for the third person’s medical bills – $25,000.
The final 25 is for property damage. Property damage can mean anything from another person’s car, to a city-owned light pole, to somebody’s garden fence.
So if you hit a 2010 Toyota Corolla (worth around $5,000), the $25,000 property damage limit will cover you. But if you rear-end a 2020 Mercedes-Benz (expensive new $30,000–$130,000 vehicle) and cause it to crash into a light pole on the side of the road (around $2,000), your $25,000 limit isn’t going to cover you by a long shot. You would be on the hook for at least $7,000 after insurance is paid out, if not $107,000. And that’s for property damage alone.
However, we know that most drivers on the road are not driving a Mercedes-Benz. In August of 2019, Kelley Blue Book reported that the average price for a new car is around $37,4012. So if you hit someone else’s new car in 2020 (spoiler alert: the price has only gone up3), the $25,000 limit will not cover you in most cases.
We also know that about 65% of drivers consider buying a used car rather than a new car4. Used car prices averaged to about $20,6835 in summer of 2019. This means that the state minimum limit of $25,000 for property damage would be cutting it very close, and many used cars are still priced above this limit.
If Your Liability Limits Don’t Hold Up, This Is What You Face To Lose
If your liability limits don’t cover the damage you cause, the injured parties will most likely come after you to pay their medical bills – which could be increased by the degree of pain and suffering they experience6 – as well as their property damage bills.
On busy Colorado highways, many of us have unfortunately been bested by the icy, snowy roads in winter and caused an accident. Remember the bomb cyclone in spring of 2019? During that storm, multiple pile-ups occurred on I-25 alone, including 30, 40, even up to 100 cars in a single pile-up7.
Determining who’s at fault in a pile-up is always tricky8. Many times fault isn’t solely attributed to the driver in back or the driver in front. No matter your position in a pile-up, there is a chance that you could be held at-fault for a portion of the accident. This means you could be on the hook for $100,000 or more, completely out of pocket.
If you’re sued for causing an accident, they’ll come after your bank accounts first. Don’t have $100,000 or more in your accounts? They can also come for your investment accounts, including your retirement account. They can seize your home, your car, even your personal property, right down to your wedding ring. If it’s an asset, they can take it.
If they seize all your assets and you still owe money, they can even garnish your wages. Luckily, there are steps you can take to prevent all this from happening.
How To Select The Correct Liability Limits For You
This is where auto insurance comes into the picture. Remember those state minimum liability limits from above? Those are minimum liability limits, and any good insurance agent (including us at Leinweber Insurance Agency) will always recommend choosing higher limits so you’re properly protected.
Your liability limit options will most commonly be:
We always recommend the third option, as this provides adequate protection in most cases for most people. If you’re a homeowner, you should choose liability limits at 100/300/100 at the very least. Limits of 250/500/250 provide even more peace of mind.
This is why calculating your net worth is so important. How much do you have to lose? How willing are you to lose it, should the unthinkable happen and you hit an ice patch on the highway? Is that a risk you want to take for you and your family?
Once you know how much you have to lose, it should be easier to determine the liability limits you need in order to protect yourself and your family.
Don’t wait for the worst to happen. Give us a call at 303-558-9880 or visit our homepage here. We can’t wait to help you determine the coverage limit that works best for you so you can rest assured that your auto insurance always has your back.