How Much Liability Coverage Do I Need on My Car Insurance Policy?

Nearly every state requires a minimum amount of liability coverage on your vehicle insurance.

Those of us who love saving money may be tempted to lock in the minimum amount and pay as little as possible for our car insurance. However, there’s a risk in doing that, especially if you have some assets.

How much liability coverage should you get? That’s what a listener of the Clark Howard Podcast recently asked.

How Much Liability Coverage Do I Need on My Insurance?

Are the state-required liability minimums for vehicle insurance good enough? A listener posed the question on the Nov. 28 podcast episode.

Rhonda in Alabama wrote: “I have a 2017 truck and need advice on how much liability I need to have on car insurance. I am a 26-year-old, renting a home and have a good job. I do have a decent amount of savings.”

In order to answer this question, Clark said he’d need to know how much money constitutes a “decent” amount of savings. The age and value of the vehicle matter as well. And a truck that’s about six years old still holds value.

“The number one area people cheap out on with auto insurance [that] they should never is having adequate liability coverage in the event they have an ‘oops,'” Clark says.

“You have what I call a success tax. You’re building up nice savings. Over time you’ll build net worth. So going with state liability minimums, which are so ridiculously low, means that whatever you do have could be wiped out in a judgment against you.”

When you have nothing in the bank, Clark says, you have nothing to worry about. State liability minimums are just fine.

If you have a mortgage, Clark says, you should strongly consider upping your liability limit beyond the state minimum.

“You say [you have a] decent amount in savings. That alone would mean you would want a hefty amount of liability coverage so you don’t have to fret and worry that one time you look down at your phone and you cause an accident. And somebody sees the next billboard for a lawyer and they’re calling. And suddenly your savings are wiped out,” Clark says.

“You want to make sure that you can cover the unexpected. We make mistakes. We do things that are our fault. We have a wreck. That’s why you have the liability coverage.”

Final Thoughts

If you’ve built up significant assets, going cheap on your liability coverage may not be the thing that looms in your mind as a threat to your money as we’re fighting historic inflation and one of the worst years in the stock market in more than a decade.

However, if you aren’t careful, what may seem trivial can put your money at real risk. The more assets you have, the more important it is to set significant limits on your liability coverage.