The Dangers of Liability Only Policies

Written By
Eric Foster
Posted
February 22, 2021

Why We Recommend Policies Above State Minimums

Purchasing "liability-only” coverage for your auto insurance is a tempting gamble, and, even I have personally considered it to save a buck. Dishing out hundreds, if not thousands, of dollars every year for something you are unlikely to ever use is hard to rationalize. If you are like me, you try to cut costs wherever possible, and this one seems natural. But this is one corner, you don’t want to cut.

One of the most common ways people try to lower their auto insurance premium and their monthly bills, is by purchasing “liability-only” coverage, or even worse: state minimum liability-only coverage. If you are one of these people flirting with state-minimum, liability coverage, please keep reading!  

There are a number of biases we all hold when it comes to the way we think about our driving abilities and the likelihood that we will cause an accident. Most of us believe we are much safer behind the wheel than we truly are. One study showed that on average, drivers give themselves a 7 out of 10 on their driving skills. Another study showed that 93% of people believe they are an above average driver.  

This type of thinking seems to be quite literally flawed, human nature.

What is liability-only coverage?

The Bodily Injury (BI) and Property Damage (PD) limits makeup the liability section of your auto insurance policy. You can learn more about liability coverage here. “Liability-only” refers to a policy that includes these coverages, but excludes collision and comprehensive coverage (coverages that protect your vehicle). For most situations, a sufficient auto insurance policy would include liability, collision, and comprehensive coverage. If you are considering “liability-only” coverage in an attempt to save money, consider the following:

· If you are deemed at fault for an accident, you will not receive any money from your insurance company to cover the damages to your vehicle, and you will be forced to cover the costs to repair or replace your vehicle out of pocket. If you cannot afford to cover these costs, you may find yourself without a vehicle.

· There may be better ways to save money on your insurance. For example, many insurance companies offer discounts to customers who are willing to enroll in a telematics program, where you may be required to install a tracking device in your vehicle for a set time, in exchange for discounts. Additionally, you may be able to save by bundling all your insurance policies with one company.

What is state-minimum insurance?

Auto insurance is required by law in most states, and even if you are in New Hampshire, there is still a minimum amount of liability coverage that you must carry, if you decide to purchase insurance (weird flex, New Hampshire). Although it may be tempting to opt for the state-minimum coverage to save money on your premium, it’s usually not a great idea. State-minimum coverage is often much less than what is necessary to actually protect you financially.

Here’s an example: Pennsylvania state-minimum for personal liability is $15,000. Let’s go to a dark place and imagine you were in an accident, someone else was injured, and you were found legally liable. The injured party’s medical bills were roughly $42,000. That person could sue you individually for the difference, and you would have to pay the remainder, not your insurance company.

That is a boatload of money. If you are getting a new quote from us, we try to start with liability limits no less than $50,000 per person, $100,000 per accident for Bodily Injury, and $50,000 per accident for Property Damage.

We all want to find ways to save money wherever we can, but unfortunately, great auto insurance is a luxury that many of us simply cannot afford. Here is the solution: instead of taking on state minimum insurance, we can help you compare coverages across dozens of insurance companies to make sure you are getting a great deal.

About the Author
Eric Foster
CEO & Founder, Woop Insurance Agency LLC
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