Insurance companies offer several types of coverage to protect you financially when you’re involved in a crash. But the most important is liability coverage, which pays for costs related to the injury or death of passengers in another car as well as any damage to other vehicles and property if it’s determined that you were at fault in a crash. (Liability coverage also covers passengers in your car.)
Almost every state requires liability coverage. In Virginia, for example, the minimum coverage required by law is $30,000 per person and $60,000 per incident for bodily injury or death of two or more people, and $20,000 for property damage. (This is usually stated on an insurance policy as $30,000/$60,000/$20,000 or simply 30/60/20.) Experts say most state minimum coverage requirements are woefully inadequate. Douglas Heller of the Consumer Federation of America cites as an example a driver covered only by Virginia’s minimum requirement who causes a crash in which three people have $50,000 in medical bills per person. The driver’s insurer would cover $20,000 of each injured person’s medical bills, leaving the driver responsible for any outstanding bills—in this example, $90,000.
How much coverage is enough? Loretta Worters of the Insurance Information Institute recommends a minimum liability coverage of $100,000/$300,000/$100,000. For more protection, experts recommend purchasing an umbrella insurance policy on top of higher-limit liability coverage. An umbrella policy added to a homeowners policy extends liability protection to $1 million or more, and depending on the insurer, fills whatever gaps may have been left by auto and homeowner policies.
You can usually buy an umbrella policy only from a company that you’ve already purchased insurance from. Prices vary depending on what types of coverage you already have—car, home, boat, business, etc. You also need to know how high your basic liability insurance needs to be and if your insurer requires bundling all of your policies to get the umbrella policy. Worters says a $1 million umbrella policy typically adds $250 to $300 to your annual premiums.
There’s also coverage that pays for damage caused by uninsured and underinsured motorists, as well as personal injury protection or medical payment coverage, which covers your own injuries if the other driver has inadequate coverage or none at all. Worters says these are always good to have.
