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Liability Coverage - How Much Do I Need?

Written by Doug Cohen

How Much Liability Insurance Do I Need?

For most people, the question of liability insurance isn't as much about what the law requires you to carry as it is how much you need to protect yourself in case of an accident. For most car loans, auto leases and similar agreements you are required to carry a minimum amount of liability coverage to protect the vehicle. What happens to your finances is another matter entirely.

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If you drive a leased vehicle and carry only the minimum amount of coverage, you are held responsible for any amount which exceeds your liability insurance in case of an accident. If the costs of an accident exceed your coverage by $25,000 in hospital bills and/or property damage, you must pay the full amount of the excess.

In cases such as these, many people who can't afford to pay such large amounts find themselves resorting to filing bankruptcy, but doing so may force you to sell your possessions as part of the terms of the bankruptcy agreement. Granted, some cases don't demand this, but are you willing to risk your possessions to avoid paying a few dollars extra on higher liability protection?

Ensurance.com president Doug Cohen believes spending those extra dollars should be a lifelong habit when it means keeping yourself from facing the specter of a bankruptcy filing.

"My grandfather used to say, ĎBuy as much insurance as you can afford, because you never know when the day, hour or minute might arrive that you'll need it, and then you'll sure be glad you did.í I'm sure insurance was much cheaper back then and I'm sure people didn't use it as often as we do today."

Cohen says itís important to take a personal inventory of how much you make and how much you own; take stock of what assets you have to protect and how much coverage is needed to make that happen.

"Look at what potentially could go wrong," Cohen advises. "Assign dollar values to those, and then balance that with my grandfather's advice by taking a look at how much they can reasonably afford given those first two criteria."

The basic idea is to keep from paying any amount out of your own pocket. If you canít afford to set your insurance coverage as high as you prefer, try starting a "cushion" account to protect yourself in the case of an accident. If you can afford to save what you think you might need to make up the difference between what your coverage provides and the actual cost of an accident, you spare yourself a crippling blow to your bank account.

Many insurance experts advise bodily injury liability of at least $300,000 per accident and $100,000 per person. For property damage, the standard advice is to carry $100,000 per accident. The terms of bank loan or auto leasing agreement may stipulate other amounts, but thereís no law preventing you from carrying higher coverage if you can afford it. The advice of Doug Cohenís grandfather is sound; those who heed it find themselves in a much better position when it comes time to file an accident claim.

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