Auto Liability Limits: The Argument for Higher Limits and/or An Umbrella Policy

People often ask us if their auto liability limits are where they need to be, and we typically tell them that as their assets go up, so should their limits. Along with higher limits, we also highly recommend getting an umbrella policy, which is basically going to give them that extra coverage in case they exhaust their primary limits.

We believe an umbrella policy is the best deal you can get in insurance.  The cost for a million in coverage is very inexpensive.. Given the scenarios we’ve witnessed, we strongly encourage everyone on the road to get higher limits and/or an umbrella policy, and here’s why.

The Problem with the State’s Liability Insurance Requirements

In Alabama, the only thing required by the state is the 25/50/25 minimum liability limit. What that means is:

• $25,000 for bodily injury per person. If you have an at fault accident, the most the policy is going to pay for any one person is $25,000. This coverage applies if you are at fault and the other party has Bodily injury due to the accident.
• $50,000 is the maximum for bodily injury for any one accident. If you have an at fault accident, the most it will pay is $50,000 in bodily Injury for the total accident, regardless of the # of vehicles
• $25,000 is property damage liability. $25,000 is the max that’s going to be paid under the state minimum for Property Damage Liability. This coverage applies if you are at fault and damage someone else’s property.

The problem is, a lot of people believe that if they have the required amounts, then they’re in good shape, but the fact is, the required state limits are extremely low. As an agency, the minimum we write is going to be $100,000 for bodily injury per person, $300,000 bodily injury per accident, and $100,000 in property damage. Even then, the majority of what we write is more along the lines of 250/500/250. With any type of auto claim where somebody gets very severely injured, your state minimum limits don’t even come close.

Take a look below at some scenarios that happen every day, and think, if it were you in these situations, would you have coverage?

The need for uninsured and underinsured motorist coverage for bodily injury.  Imagine you have a vehicle full of five people and an underinsured driver causes an accident that injures all five of your passengers. In this case, the driver at fault should be liable for those bodily injuries, but they may have too little coverage. That’s when uninsured and underinsured motorist coverage is going to come into play to help cover the costs associated with those injuries.

The need for uninsured and underinsured motorist coverage for property damage.  This coverage is good for vehicles that you only liability coverage for. Let’s say you have liability coverage only for your 2005 F-150. You’re driving and an uninsured driver hits you and totals your truck. In this case, your uninsured motorist property damage is going to pick up.

We recently went through a similar scenario with one of our insurers who recently bought a brand-new vehicle and decided not to get uninsured and underinsured motorist coverage for property damage. Not long after, a driver with state limits hit and totaled her vehicle. Of course, the state limits didn’t even come close to replacing what the vehicle costs so our insurer’s insurance had to supplement the difference, forcing her to file a claim on her collision.

The need for gap insurance. We see a surprising amount of people don’t have gap coverage, and this should always be an option when you get a new vehicle, especially if you have a 100% loan or lease. The value of a new vehicle depreciates so fast that you’ll want to make sure you have this coverage in place in the event that you have to file a claim. If the actual cash value for the vehicle is less than what you owe on that lease or loan, gap coverage is going to make up the difference and allow you to pay it off.

We’ve seen it play out where a driver bought a brand-new vehicle for $40,000 and decided against this coverage. A year later, due to depreciation, that same vehicle was only worth $30,000. The loan amount ended up being much higher than the $30,000 actual cash value of the vehicle.  Gap coverage makes up that difference.

It’s no secret that insurance claims are on the rise, the costs of the vehicles are higher than they use to be, and you have so much distracted driving now compared to what you had 10-15 years ago, especially with texting. This is why, in this day and age, you want to either have higher limits or an additional umbrella policy so that if something does happen, you’ll be fully ready with sufficient coverage in place.

For more information, contact or connect with Byars|Wright today.