Optimal Car Insurance Limits

Finance
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I’ve always kept a bit more than the bare minimum legal coverage required on my car insurance. However, I’m reconsidering dropping to the bare minimum. I’ve never been in a single car accident and don’t drive often.

Most importantly, I have few seizable assets, should I be involved in an accident and sued. Most of my money is in retirement accounts. My checking account has a few thousand in it. And my 15 year old crown vic is worth very little on the blue book side. I own no real estate.

Currently, have no garnishable wages but that may change so I would like to consider wage garnishment as a possible reason in the future to have higher coverage at that time.

My goal isn’t to stiff a legitimate person out of money if I damage them or their vehicle, it is to deter someone from faking excess injury to get more money out of the deal.

I’m preparing to shift my finances into an early retirement extreme mode where I live at a bare minimum level of expenses and I can save $160 per year by going from my current $100k/$300k coverage down to bare minimums for property and bodily injury coverage. Part of me thinks that $160 is cheap to not have to worry about hiring my own lawyer, but even if I do $1M of damages and only have $15k of coverage, it’s my understanding the insurance company still has to hire an attorney. But perhaps the attorney will just say “f it, here’s your $15k, anything more, take it up with my client”

Or does the insurance-provided attorney have to fight the case to the same level of diligence, even if the final verdict is likely to be 100x what my coverage allows?

I expect many to argue that $160 is cheap insurance to raise it up to 100k/300k, but if that’s true, how do I know it’s optimal? Maybe I should be paying another $50 per year and go up to $250k/$500k? Maybe I should pay another $200 a year on top of that for a $1M umbrella policy? The arbitrary 100/300 that I have been using the last year isn’t necessarily optimal. It just seemed like a decent position offhand at the time when I set it up.

I also expect an argument that if I cause $100k of damages to someone, I shouldn’t plan to pay out $15k and then declare BK on the rest. I owe it to that person that I injured to make them whole. However, what if I keep my $100k coverage and actually cause $200k of damage to someone? I don’t have the $100k out-of-pocket to make them whole, so in that case even though I “did the right thing” by having a high coverage, I stiffed someone.

What if I got a $1M umbrella plan but caused $2M of damage to a bus full of kids? I don’t have the extra $1M to cover them out-of-pocket. At some point, all of us have the ability to do damage greater than our insurance or cash savings can compensate for, and we have to accept that ethical risk. I agree that $15k is very low, but how do we determine what’s the right level?

Finally, the old adage I’ve always read is to have insurance to cover all of your assets. So if you have $100k in cash in the bank, get a $100k policy. If you have $1M in cash, get a $1M umbrella policy. I find that silly because what’s stopping you from doing $2M in damage when you have a $1M umbrella and then losing all of your $1M in assets on top of the umbrella payout?

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Holy Shit. Is this the Real TripleB? You’re a FW legend and you were banned unjustly.

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Or does the insurance-provided attorney have to fight the case to the same level of diligence, even if the final verdict is likely to be 100x what my coverage allows?

With lawyers, there are really good ones, average lawyers and mediocre ones. If you have minimum coverage and you cause an accident, the insurance company knows that they are only on the hook for say $20k. They are not going to invest a lot of money in hiring the best lawyer to represent you. You will get a mediocre one.

On the other hand, if you have a 1MM policy, and there is a big claim involved, you can bet that the insurance company will hire a really good lawyer to represent you.

Finally, the old adage I’ve always read is to have insurance to cover all of your assets. So if you have $100k in cash in the bank, get a $100k policy. If you have $1M in cash, get a $1M umbrella policy. I find that silly because what’s stopping you from doing $2M in damage when you have a $1M umbrella and then losing all of your $1M in assets on top of the umbrella payout?

I would actually argue that you should have insurance coverage for 2x your assets. IANAL, but I think that these multi-million dollar payouts are extremely rare, and lawyers won’t pursue such a large judgement unless they believe they have some way to collect it. Let’s assume that you have a 2MM umbrella policy and you caused a major accident. Your insurance company will try to settle the claim. It will be extremely rare that the plaintiff will try turn away the guaranteed money from the settlement offer and risk getting 0 from the jury.

Just as an example, a few years ago, somewhere in East Texas on a Saturday night, there was a semi truck pulling out from a yard. The semi driver was lazy, and left his rig blocking the road while he locked the gate behind him. A pickup goes up over a hill, and crashes into the side of the semi, killing the driver. The insurance company immediately offered a 1MM payout, and the family took it as they didn’t want to risk going to court and ending up with less or nothing. It should be noted that the pickup driver was driving home from the bar…

A piece of advice. Whatever you do, in case of an accident, do not share your insurance limits with the other party. You don’t want the other party to know that your 1998 Crown Vic had a 1MM liability policy on it, you want them to assume that you are broke and carry minimum coverage.

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In FL you are required to turn over your limits to the other party.

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In FL you are required to turn over your limits to the other party.

This is not entirely accurate:

Section 627.4137 was enacted in 1982 to give claimants access to information about a defendant’s liability insurance when making settlement decisions. The statute requires a liability insurer to produce a copy of the policy and to disclose the following information, under oath, within 30 days of a claimant’s request: a) the name of the insurer; b) the name of each insured; c) the limits of liability coverage; and d) a statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement. The statute further requires the insurer to forward the claimant’s request for disclosure to the insured so that the insured can inform the claimant directly of any other insurance it may have.

The liability insurer is required to provide this information, not you as the driver.

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One thing I haven’t seen mentioned in underinsured and uninsured motorist coverage. Please please buy this. It adds very little to your premiums, but there are a shocking number of drivers out there who are uninsured. As a lawyer, I almost always get called when family members are in accidents, and then help them settle with insurance. Twice now we’ve had uninsured motorists. Thankfully, in both cases my family members had uninsured coverage that paid out mid 5-figures.

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I remember last time I bought an umbrella insurance policy, there was an option to extend the under/un-insured portion of the car insurance up to the umbrella policy limit for a fee. I don’t remember how much it was exactly, but fairly small. Would you recommend this coverage @ThisGuy?

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Unibsured motorist coverage is definitely an angle OP should consider. Also, it should be noted that it’s nearly impossible to get a higher limit for uninsured motorist coverage than what you are carrying for liability.

Even though OP might be “judgment proof” from a liability standpoint, that will not help if he ends up with a long term disability as the result of getting hit by a uninsured deadbeat/illegal.

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I would rather have the additional coverage and liability protection and make up the difference in premium costs by simply increasing my deductible.

That way you can “self insure” against a very reasonable small amount of financial risk (the increased deductible) while maintaining better protection against catastrophic loss.

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There’s no deductibles on liability insurance. Deductibles are for collision and comprehensive insurance, neither of which I carry on my beater Crown Vic.

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Fair point.

In that case, $160/yr is a reasonable premium to avoid the risk/hassle.

But that is coming from a standpoint of being pretty far removed from “judgment proof”…

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Is that not essentially the same thing?

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One you have control over, the other you don’t.

I still think there could be scenarios where it’s better the other party doesn’t know. If you were responsible for an accident, and you mentioned your high limit liability insurance policy, the other person could get all kinds of ideas in their head about suing you and winning the lottery. If they see your 98 Crown Vic, they may assume that it’s not worth pursuing you.

I don’t see any scenario where you come out ahead by voluntarily revealing your policy limits to the other party.

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A piece of advice. Whatever you do, in case of an accident, do not share your insurance limits with the other party. You don’t want the other party to know that your 1998 Crown Vic had a 1MM liability policy on it, you want them to assume that you are broke and carry minimum coverage.

Solid recommendation. If it’s something that could lead to a substantial award, worst case for the defendant is that a decent lawyer will come after everything discoverable. This is one reason I have a lot of my assets held in trust. Not nearly as easy to uncover if you take the time to do it right.

I struggled with appropriate amount of umbrella coverage - currently have a million, thinking about raising it to two since the difference in premium is <$100/yr. On the flip side, if I smear a church bus and knock it on top of a gas line that blows and takes down an entire neighborhood, I wouldn’t have nearly enough coverage.

Agree with others, if the insurer is potentially on the hook for a million or more, you are likely to get far better representation. If at minimum coverage, expect the insurer to cut a check and run away.

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This - how much is it worth to YOU if a deadbeat carrying no/minimum insurance smashes into you?

40k? 100k? 300k? The world is not enough?

I’d want at least something with 6 figures.

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Granted there is effectively no insurance limit that guarantees that you would not stiff someone. It is just a question of probabilities of doing so decreases with increased insurance liability level.

Considering the price of cars alone - not even the cost of potential medical procedures -, a $15K liability is trivial to exceed. You don’t have to total someone’s car to exceed it so your probability to stiff someone when carrying ultra-low liability is much higher than if you carry a $100k or $300k liability.

Regardless of the moral duty to make others whole when you’re at fault, the other thing is IF you’re more likely to declare BK with ultra-low liability, how much will such BK cost you. Even if you have low assets, you would probably still lose a few thousands in it. And since BK affects credit scores, you may also pay extra for borrowing, for insurance, etc… Are the potential losses balanced by cheaper premiums? Say if you lost $1600 in such an event, that’s 10-yrs of $160 savings wiped out.

There’s no right answer there. If you never have any major at fault accident, you always win. But if you do have an accident where you’re on the hook for more than $15K, how many years of insurance premium savings will it wipe? For me, if that answer is something like 20-30 yrs, the whole thing is not worth it, moral aspects nonewithstanding.

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The general rule for how good your representation is gonna be is defined by how much the insurer expects to save vs. the max payout of your policy. With $15K, no matter how good the lawyer is, there are way more cases where the insurer is gonna be on the hook for the whole $15K. At that point, they’re just looking to save on lawyer fees. With $1M, there’s a lot more cases where a good lawyer will save them $100Ks hence the better representation usually. But if you caused a major accident costing multi millions, you’d get the same representation as if you have a $15K policy. The only difference is your likeliness to cost such a major accident that it would not be worth it for them to bother even with high liability limit.

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I have our coverage jacked up a bit because of where we live. It’s not uncommon to be next to a $100k S550 at a light, or a Lambo, or whatever. I mean our Jeep Grand Cherokee has a sticker price of almost $50k… Also, there are a lot of rich folks around me (sadly, I’m not one of them) and you hit someone who doesn’t want to be hit, and has enough money, the legal fees alone can eat up half of a $300k coverage limit real quick.

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I was under the impression that legal fees were not included in the coverage limits. Someone please correct me if I’m wrong.

Let’s say you have a $100k liability insurance, and it goes to court, and the other party is awarded $100k. The lawyer fees were $20k. I believe the insurance company will pay for the bill in full, and not send you the $20k bill for representation.

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From geico.com (where I have our auto policy):

So I guess it’s not very clear. Does that mean it comes out of my $300k limit, or just the fact that I have that coverage means I have “free” lawyers?