In New York State, How Much Liability Coverage on My Auto Insurance Policy is Considered a Responsible Amount?

November 14, 2019

"...the current limits required by the majority of states are woefully inadequate for any motorist."

I love this question because it doesn’t include the familiar words “required to” or “need to” have.

When one asks how much auto liability coverage am I “required” or “need to” have, people generally point to the legal requirements of each state. Little do most know that minimum state liability requirements have not changed in decades.

Suffice it to say, the current limits required by the majority of states are woefully inadequate for any motorist.

The question of what is a "responsible" amount of liability coverage begs an entirely different perspective.

A “responsible” amount of liability insurance coverage would be an amount that protects one from potential exposure to loss and provides those you injure reasonable compensation.

LIABILITY LIMIT = NET WORTH?

A common misconception is one’s limit of liability coverage should reflect the value of your current net worth. The Median Household Net Worth of people under the age of 35 ( a s of the last posting by the US Census Bureau was $6,676 ). That number would not even meet the low limits required by most states.

Those of middle age (45 to 54) show an average net worth of $84,542. However, neither number are something to base an auto insurance liability limit.

Net Worth may be a motivator for an opposing attorney, but it does not reflect your potential exposure to loss. Nor does it consider the social responsibility to those you might injure.

So how should we determine an appropriate limit of liability coverage on my auto insurance?

WHAT IS MY POTENTIAL EXPOSURE TO LOSS?:

The old adage, "you don't have to be a millionaire to be sued like one" certainly holds true. The unfortunate circumstance of injury to others resulting in the loss of life enjoyment, companionship or the capacity to earn a living happens to those from all walks of life.

So what is my potential exposure to loss? Following an accident with injury or damage to others, one stands to lose:

Accumulated assets
Garnishment of future earnings.

The potential loss from an auto insurance claim is also not limited to seizure of accumulated in assets (say net worth), but can also include garnishment of future earnings. In New York, up to twenty-five percent (25%) of disposable income may be garnished to satisfy a judgement.

What about compensating those we might injure?

The average Personal Injury award in Vehicular Liability cases in 2013 was $351,829.

Caps for personal injury damage awards vary by state, but generally range in amount from $250,000 to $1,000,000.

Those numbers that reflect what could be required to compensate others who may be injured following an accident.

WHAT THEN IS A RESPONSIBLE AMOUNT OF LIABILITY COVERAGE?:

A Responsible Limit of Liability is one that:

Adequately protects the insured from large financial loss (assets and garnishment of wages), and provides;
Adequate compensation to those injured.

Ask your insurance company/agent about the difference in cost between your current limits and those providing amounts of $300,000 per person and above. The actual premium difference is likely minimal.

Many prominent sources suggest that higher liability limits are prudent and financially responsible. You can check them out on the links provided below:

CBS News - Why you need more liability insurance?
Dave Ramsey - How Much Car Insurance Do You Really Need?
Kiplinger Magazine - Auto Insurance: Liability Coverage
The WalletHub - Bodily Injury Liability Insurance: What it Covers & How Much to Buy

Your financial future and those of others are at risk every time you get behind the wheel. A financially and socially responsible limit of liability limit is the highest one can reasonably afford.

Would you like to discuss pricing for different limits and their appropriateness for your situation? We here for you. e welcome your call at 607-324-7500, or request a quote online: https://www.ryanagency.com/request-a-quote

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