Optimal Car Insurance Limits

Legal fees do not come out of your liability limits.


Good to know. I guess it makes sense to leave that vague blurb there for Geico, making you think that $300k covers legal fees and settlement/awards. Not sure how it really applies to reality, but perhaps even if it gets a few people to drive more carefully, they’ve won. Forgive me. I just hate insurance companies.

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Great points! Let’s further apply your concept of probabilities to the worst case scenario. Suppose I reduced my coverage to minimum. And suppose that costs me $3,000 worth of costs to declare BK and opportunity cost for losing credit card rewards.

Comparatively, I could pay $1500 over 10 years for superior coverage that prevents that risk. Looking at those raw numbers, I’m paying $1500 to reduce a potential $3,000 burden. So I’m paying half as much as the potential cost, over those 10 years.

If I were 100% guaranteed to get into a car accident that caused >$20k of damage within the next 10 years, then I save $1500 by buying the extra insurance - ignoring NPV/IRR calculations because a $3000 expense in the future is cheaper in present value terms.

However, there is not a 100% guarantee for me to get in such an accident. According to the number figures involved, to break even, there’d need to be a 50% chance to get into a significant accident within 10 years to break even. Flip a coin. I either double my money (because the $1500 expense will prevent a $3000 cost) or I lose my money (paid the $1500 for no value gained).

But, there’s not a 50% chance I’ll get into a major accident within 10 years. If there was, the insurance wouldn’t cost only $160 a year. It would probably cost $5k+ a year. Because if the insurance company covered two of me, statistically, one of us is getting into a serious accident over the next 10 years which costs a $100k payout. Thus, to break even ignoring admin expenses, the insurance company needs to collect $100k in premiums between the two of “me” over 10 years, which is $50k per person over 10 years or $5k per year.

Given the insurance companies hire actuarials to calculate risk, it’s fair to say they’ve calculated the risk at much less than 50% and probably closer to 1%.

Thus, for me to break even on $1600 in insurance premiums over 10 years, the cost of the BK would need to be $160k. I doubt declaring BK will cost $160k and therefore mathematically speaking, I’m better off at minimum coverage rates.

All fair points, @TripleB, but think about your credit score after BK. You’ll likely have to pay more out of pocket for new housing (rental security deposit) which just simply is a cash flow/savings issue, your insurance rates WILL go up from the accident AND the lower credit score, you’ll pay more for credit products (secured or unsecured), you won’t be able to buy a home unless it’s pure cash for quite some time, and I could go on and on. Granted, some of those are generalizations such as the security deposit (since you will get that back, barring any damage to the place when you leave), but I think my point is clear.

That BK on your credit will hit you in more places than it seems on the surface, for many folks. Perhaps people here are more aware of these potential costs, but I think it’s still worth pointing out. Will it cost you $160k in interest, opportunity cost, etc. for the 5-10 years that the BK is really hurting you? Arguably not. But I don’t think you’re only giving up $3k in credit card rewards.

@jaytrader It comes down to what is the likelihood of getting into a major accident > minimums and what is the cost if I do. You bring up interesting points about potential costs.

But the likelihood is probably 1 in 1000 or more that I get into a catastrophic accident given my specific set of circumstances (how little I drive, where I drive, the safety consciousness of how I drive, etc). Not only do I need to get into the accident, but I need to cause it to be found liable for the > $30k damages. If I don’t drink and drive, don’t text while driving, maintain a safe speeding limit while driving, avoid passing people with minimal clearance, maintain a safe following distance while I drive, and if I do those behaviors 100% of the time, how likely will I cause a catastrophic accident resulting in a huge payout?

I can’t control others on the road, and regardless of what I do, I might be involved in an accident, but I do have control over whether I cause the accident.

Regarding my own medical expenses in the event of accident with an underinsured driver, won’t my catastrophic health plan take care of me? So I’m out the $5k deductible and then it covers all my medical bills pursuant to the accident that was the other driver’s fault?

All anyone can say for sure is that your odds are greater than zero. By the way, even if it’s clearly the other guy’s fault, do you have witnesses? And while you’re so concerned about maintaining that interval did you neglect to notice the pedestrian crossing against the signal?

The basic issue here is that you truly don’t believe it’s going to happen to you. You might be right. I hope so.

What about pain and suffering, lost income due to disability. Etc. ?

I’m retiring very soon. I imagine I would get nothing for lost income if I don’t have a job. Pain and suffering is an interesting one, but I think I’d rather not pay for that coverage if I have to fight my own insurance company in court to determine how much I get. I’d rather just know I’ll get nothing than feel spited by my own insurance company.

True, though I imagine they’ll give a lowball offer. What if you were disabled and need care? Major $$$ . No guarantee insurance laws will protect you in the future - your policy might get dropped or rated very high.

The most important type of insurance to have is UM/UIM. Most responsible non-criminal adults are probably never, ever going to cause a $500,000 accident through negligence. But the odds of being hit by an accident-prone uninsured or underinsured motorist are rather high.

[Note: I was also banned like BBB by the FWF Gestapo.]


School buses are very safe. In a typical accident involving a school bus, the kids walk away, while the other driver dies. For that reason alone, if you see a school bus, get out of its way.

i have a minimal liability insurance plan. most of my assets are either offshore, unlisted, or in my mom’s name :wink:

you won’t get to my money.

Hi Jerry,

Given that you openly post your blog address in your forum profile, which links to your paypal account with your real name, a plaintiff’s attorney will easily find this post if you are ever sued, and judges tend not to like people intentionally hiding money. The courts may be more aggressive in garnishing wages or seeking alternative means of collection if they become aware of your attitude.

Much better to be humble and play stupid. “The minimums were all I could afford. I feel so bad, I want to help the plaintiff but I barely have a few dollars to my name, your honor.”


Haha!! Go TripleB!


dude, i don’t wanna lie though lol

(they’re all beater accounts). i have an etrade account with some real money, but it’s gone in a day at the first hint of trouble

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I’m always wary of those who advertise their riches online or IRL. AFAIK, those who are truly rich/wealthy lay low while the noveau riche or those pretending to be rich try hard to make people believe they are wealthy but then no one believes them the harder they try…LOL


i’m so hurt. i’m always weary of people who feel the need to laugh at or mock others. do you really need that?

Yeah, basically. Unless I’m asking for advice about my overall financial situation you won’t see me mouthing off about how much money I have/don’t have.


what’s the advanced version? enlighten us