Most New Hampshire drivers invest in auto insurance policies that provide some level of liability insurance coverage. Coverage limits range anywhere from bodily injury limits of $25,000 each person and $50,000 each accident, all the way up to $1,000,000 each person and $1,000,000 each accident with a select few carriers, with most carriers offering additional liability coverage via an umbrella policy for an additional premium. But why should you care about your level of liability protection? After all, the State of New Hampshire doesn’t even require licensed drivers to carry liability insurance, making NH the only state in the union with no mandatory insurance law. Live free or die, right?!
Why should you care?
According to the CDC, over 30,000 people are killed each year in motor vehicle crashes in the United States. What’s more, take a look at the following graphic:
This translates to over 270,000 hospitalizations and 2,640,000 people treated at emergency departments every year due to auto accidents, which equates to nearly 1% of the US population. Take a look at the population of Laconia, NH with approximately 16,500 residents. Statistically speaking, 165 of Laconia’s residents will be seen at an emergency room this year due to a motor vehicle accident, 17 of those people will be hospitalized, and 2 will die. Statewide 13,600 NH residents will visit an emergency room, 1,390 will be hospitalized, and 155 will die. Now look at what happens if we replace “ER visit” with “$50,000 medical bill”, “hospitalization” with “$125,000 medical bill”, and “death” with “$1,500,000 lawsuit”?
Statistically speaking, for 13,600 NH residents, liability limits of $25,000 each person and $50,000 each accident would not have been sufficient. For 1,390 of them, liability limits of $100,000 each person and $300,000 each accident would not have been sufficient. For 155 residents, liability limits of $500,000 each person and $500,000 each accident would not have been sufficient. If your liability limits are insufficient, any additional expense is coming out of your wallet – do you have the means to cover a six-figure medical bill?
Ok, so now that we know why we should care about how much liability protection we have, how do we figure out how much we need? Let’s answer three simple questions.
Why do you have the liability limits you currently have?
Why were your current liability limits chosen? For the majority of drivers, one of these answers apply:
- It’s the same limit my parents had when I was on their policy -or- It’s the limit my spouse had when we got married.
- It’s what my agent gave me.
- It’s required by my lease agreement.
- It’s what the funny little lizard on TV told me I should have.
- It was the cheapest option – name-your-price tool for the win!
What do all of these rationales have in common? None of them take into account the actual level of liability protection you should have based on a personalized risk assessment. Your personal situation was different from that of your parents when you first left the nest and is most likely even more so today. It’s different from your spouse’s situation from before you were married. If your agent didn’t perform a risk assessment and just picked a “standard” level of coverage, it’s not truly suited to meet your needs. Your lessor certainly isn’t concerned about your level of liability protection as long as it meets their needs per the terms of your lease on your new car. Lizards don’t know the first thing about protecting your assets because, well, they’re lizards. And finally, while we all have a budget to keep in mind, should any of us really ever rely on a fictional plastic ray gun to decide how much liability coverage we need to protect our family’s assets? This leads us to our next question.
When was the last time you reviewed your liability insurance limits?
This question typically generates one of the following answers:
- Never have, just went with the same limits as my parents/spouse/best friend/neighbor
- Never, I just went with the limit my agent gave me.
- When I got married.
- When I bought my first house.
The reality is, you should be reviewing your liability insurance limits with a professional insurance advisor as part of a personal risk assessment at least every three years. Why? That brings us to our third and final question.
What has changed since your last review?
It might almost be easier to ask what hasn’t changed since the last review of your liability insurance needs. Did you get married? Has your family grown? Do you have any kids that just started driving? Did you buy a house? Did you get a promotion or a raise? Has your retirement portfolio increased in value? Did you inherit money? Has your savings account increased? You’re probably thinking to yourself, “What does a new baby, house, job, inheritance, etc. have to do with my auto policy?” The answer is, it all goes into your personal risk assessment to calculate your optimum level of liability coverage.
There are five factors that should be considered to calculate your recommended level of liability coverage. In no particular order they are:
- Cash in the bank
- Equity in your home
- Sum of investments
- Value of personal property
- Future earnings
The first four are pretty self-explanatory. If you’re involved in an accident without the proper liability protection, one can assume that your cash in the bank, your home, your investments, and your personal property are all at risk. What many don’t take into account is that the court can garnish wages (future earnings) in order to make the injured party whole. Without the proper protection, you could be literally paying for a split-second lapse in judgement for the rest of your life.
All of this being said, each of us has to decide how much coverage is enough for our personal risk tolerance. Insurance is a numbers game, where we weigh the probability of loss versus the cost of the coverage needed to mitigate the loss. For many, the sum of all five factors could be as high as several million dollars. It is up to each individual to work through the numbers with their insurance advisor to determine what level of coverage will allow them to rest easy at night.
The Insurance Outlet’s trusted advisors would be happy to perform a comprehensive risk analysis to determine your current liability insurance needs and design a personalized solution for you! Please call or text us at 603-527-8050, or stop by our local office at 174 Court Street in Laconia, NH. For your convenience, also offer online quotes 24-7 at our website. The Insurance Outlet is locally owned and independently operated.