What should my car insurance liability limit be?
The textbook reply is that this is very subjective, and you should buy what you can comfortably afford that is at least more than your personal assets- preferably by a factor of two or three. The most common car insurance limits in the industry are $100,000 per person, $300,000 per accident for bodily injury liability, and $50,000 for property damage. This might be listed as 100/300/50 on your policy. Just because this is what most people buy- doesn’t mean it’s all you should have. If you have substantial assets, then you should buy as much as you can get…which is typically a $5 or $10 million umbrella policy added to your underlying auto policy of $3-500k. There are some options for additional layers of protection, but we’ll set that aside for now.
Let’s just look at why the higher liability limits make sense. First of all, with any luck- it will be a waste of money. In other words- the goal of having good insurance is to never have to use it. Having a huge car insurance claim that is covered by your policy is like winning the wrong kind of lottery. Technically, it validates your decision to be financially prudent, but it’s an experience that no one would choose to go through.
The unfortunate reality is that large car insurance claims do happen. A quick review of high profile law firm websites in North Carolina reveals cases routinely settling for $1-2 million. These typically involve serious permanent injury to a single individual. It is worth noting that for unusually large settlements, very often the claimants want to remain anonymous- and the insurance companies do not want large settlements to attract publicity and establish a perception of precedent, so non-disclosure agreements are commonly part of the settlement and we don’t see the most catastrophic settlements in print. On occasion, we do get glimpses- for example, there was a $30 million settlement in FL where an elderly driver t-boned another vehicle causing permanent brain damage to the passenger. You can find 8 digit verdicts littered around in various states and it would be a reasonable assumption to believe they happen in North Carolina as well.
The bottom line is that if you are in the middle class and your assets are under $1 million, you should still carry an umbrella policy for at least $1 million to protect what you do have. If you have a higher net worth, the extra few hundred dollars a year for higher limits could literally save you millions. It is a small financial hedge against a very large risk, however unlikely.
