Do You Have Enough Auto Liability Coverage?

Data compiled by the National Highway Traffic Safety Administration (NHTSA) shows Americans were involved in more than 6.4 million auto accidents in 2005. Total damages that year exceeded $230 billion, meaning that the average auto accident cost more than $35,000.

It may be needless to say, but important to state nonetheless: auto accidents are expensive. In fact, your out–of–pocket expenses could be substantial without adequate auto liability insurance coverage.

What's behind this cost growth? First, the values of vehicles have skyrocketed over the last decade. The average value of a new car is well in excess of $10,000–which was not the case when many laws requiring minimum auto liability limits were enacted by state governments hoping to limit the number of uninsured drivers and to protect insured drivers from incurring unaffordable legal liability. Second, the rising cost of medical care also has had an adverse affect on your auto policy's liability limits, which means that the state–mandated limits of your bodily injury coverage may no longer be realistic.

If you fail to purchase adequate auto liability coverage it doesn't free you from legal liability for injury to another person or property damage resulting from an auto accident in which you were involved. Without adequate liability coverage, you could be required to shoulder these costs out of pocket–costs that can greatly exceed the funds you have available. Situations such as these are breeding grounds for personal bankruptcies–a common conclusion when a driver has little or no auto liability coverage.

How Much is Enough?
That's a good question. The short answer is as much auto liability coverage as you can afford on your budget. "Why up your auto liability limits"? you ask. Because you cannot accurately determine the nature or severity of an auto accident until it happens. Unfortunately, most people assume their next auto accident will be a fender bender in a parking lot, not a multi-car collision with injuries.

Auto insurance liability provides financial backing when you are ruled legally liable for damages resulting from an auto accident. Damages may consist of bodily injury, property damage or both. The unpredictable nature of accidents means you never know who, what type car or how many cars with which you will collide.

UM/UIM–An Exceptional Value
In addition to higher limits of auto liability coverage, drivers also should consider the cost of an accident involving an at–fault driver who is uninsured, underinsured or leaves the scene. Uninsured/Underinsured motorist (UIM) coverage kicks in when any of the above happens, threatening you with responsibility for the financial costs associated with a serious accident that involves injuries.

A driver and/or passengers who are seriously injured will incur significant medical costs and additional costs, such as lost wages, pain and suffering and more. If the at–fault driver has little or no liability insurance or flees the scene, the injured party may have difficulty collecting payment from that person. Medical and/or disability insurance, if available, may pay a portion of these expenses, but not costs related to pain and suffering or mental anguish. If these costs are to be paid out of pocket or, in a worse scenario, there is no medical or disability coverage the financial effect on you could be devastating. Bankruptcy may be inevitable.

Conclusion
Some states require drivers to carry a minimum amount of liability and/or UM/UIM coverage. It is important to review these limits and to consider securing higher limits for each.

Other states may not require either coverage until there is an accident. Still others have no minimum requirement whatsoever. Regardless, it is important that drivers understand the importance of both coverages – and how each protects your family's financial health.

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