How much automobile insurance should you buy?
The answer is easy: As much as you can afford.
The primary reason to buy automobile insurance, both liability and uninsured motorist (UM) coverage, is to protect you and your assets. Your insurance company will almost never pay more in damages, to you or to a person you negligently injure, than the dollar amount of the coverage you paid for, no matter how high a verdict there may be either against you or for you. Sound complicated? I’ll illustrate with two hypothetical examples, one involving liability insurance coverage and one involving underinsured motorist coverage.
Liability Coverage Example Suppose you buy a policy with limits of $25,000/50,000 in auto liability insurance coverage.2 As a result, you would be personally responsible for payment of the remaining $50,000! The injured person would likely seek to recover this amount from your savings and other assets. This is a harsh result, I am sure you would agree, and one you would want to avoid.
What would happen if you had purchased a policy with higher limits of $100,000/$300,000? Since the verdict is less than your limit, your insurance company would pay the injured person the entire judgment amount of $75,000. Consequently, you would not be obligated to pay any part of the judgment yourself. To sum it up, the more insurance coverage you buy, the less likely it is that you will ever be called upon personally to pay any part of a legal judgment against you.
Underinsured Motorist Coverage (UIM) Example Your purchase of high insurance limits can also help you or your family members when one or more of you are injured through the fault of another driver. This might occur if you and/or relatives who live with you sustain serious injuries in a motor vehicle accident, and the negligent driver who caused the accident has less insurance coverage than you do.
How does this work? Suppose you were in an auto accident that was someone else’s fault, and you were injured. Suppose your injuries and losses are serious, and your medical bills and lost wages are substantial. In your lawsuit against the driver at fault, a jury awards you $100,000 in damages. /Now suppose the driver at fault has purchased an auto insurance policy with $25,000/$50,000 limits, and you have an auto insurance policy that provides $100,000/$300,000 limits in UM/UIM coverage. The at-fault driver’s insurance company will pay you only $25,000, which is the maximum amount of liability coverage the defendant bought which can be paid to one person with respect to one accident. (When limits of insurance coverage are stated as “$25,000/$50,000, the first number is the maximum amount the insurance company will pay to any one person injured in an accident, and the second number is the maximum amount the insurance company will pay to all claimants in a single accident, regardless of how many injured persons there are).
However, you can look to your own UM/UIM coverage to see if there is underinsurance coverage (UIM) available to you. Under Virginia law, if the limit of the UM coverage available to you is greater than the limit of the at-fault driver’s liability coverage, then he is considered “underinsured” with respect to you and you will have underinsurance coverage on your own policy to give you extra coverage.3 The availability of underinsurance coverage depends on a comparison between a specific at-fault driver’s total liability coverage, and the total limit of UM coverage on the injured person. (Sometimes either the at-fault driver or the injured person may be able to add together or “stack” several insurance policies). In the example above, since the verdict is $100,000 and the at-fault driver only has $25,000 liability coverage, his insurance company would pay the first $25,000 of the verdict. Then your insurance company would pay you $75,000 under you UIM coverage, because that’s the amount by which your own UM motorist coverage exceeds the at-fault driver’s liability coverage limit of $25,000. By adding your $75,000 in underinsurance coverage to the defendant’s $25,000 liability limits, the entire $100,000 judgment you won in court would be paid in full.
Now suppose instead that you had only purchased an auto insurance policy with a $25,000/$50,000 limit in UM coverage. In the accident described above, your insurance company wouldn’t pay you anything because your UM insurance coverage of $25,000/$50,000 is not any higher than the at-fault driver’s own $25,000/$50,000 liability limits. Yes, you can still pursue the at-fault driver personally through collection after trial. However, the average at-fault driver has few assets and collecting on a judgment can be a long, expensive, and often futile endeavor. In the end, it is always better to carry high liability/UM insurance limits yourself and ensure that you and your own family are protected in the event one or more of you sustains severe injuries caused by the negligence of a driver with low automobile insurance coverage limits.4
1 Auto insurance limits of $25,000/$50,000 constitute the minimum amount of auto liability and uninsured motorist coverage you can buy in Virginia. Each state determines its own auto insurance minimum limits; therefore, minimum limits differ from state to state as do laws related to auto insurance. The facts in this article are based on Virginia law only. If you live in another state, you will want to learn about the applicable insurance laws in your own state.
2 When you see a figure like $25,000/$50,000 in relation to an auto policy, it means the limits are “split”, that is, one injured person can recover a maximum of $25,000 under the policy while $50,000 is the most coverage the insurance company will pay out to all injured persons regardless of the number of people injured in the same accident or how badly they may be injured.
3 In Virginia, you may be entitled to undersinsured motorist coverage under more than one policy, and these policies can sometimes be “stacked” to give you more coverage. Va. Code § 38.2-2206. This is a complex area of law, and it is wise to consult an attorney to explore whether there is underinsurance in your case.
4 In Virginia, you cannot buy UM coverage in an amount that is higher than your auto liability insurance limits.
About the Author: Elizabeth Morrell Allen has been engaged in the practice of personal injury law for over 30 years at the law firm Allen & Allen. From 1988 to 2004, Beth served as a branch manager of the firm’s Petersburg, Virginia office.