Your car insurance coverage can protect you from financial ruin when you’re involved in a car accident. However, what happens if the damages or injuries exceed your policy limits? Here’s a closer look at the potential consequences and how to protect yourself.
Understanding Policy Limits
Your car insurance policy has specific limits for various types of coverage, like bodily injury and property damage. These limits are the maximum amounts your insurer will pay per accident. If you’re sued for more than these limits, you could be personally responsible for the excess amount.
The Risk of Being Underinsured
The costs can quickly exceed standard policy limits if an accident’s consequences are severe injuries or extensive property damage. For example, if you have $50,000 in bodily injury coverage per person and are sued for $100,000, you may be liable for the remaining $50,000.
Potential Consequences
- Personal Assets at Risk: If you’re liable for an amount greater than your coverage, your assets, such as savings, home equity, or investments, could be targeted to satisfy the judgment.
- Wage Garnishment: In some cases, your wages could be garnished to pay the remaining amount.
- Financial Strain: Even if you manage to pay off the excess amount, the financial strain can be significant, affecting your ability to meet other financial obligations.
Protecting Yourself
To avoid these risks, consider the following steps:
- Increase Your Liability Coverage: Review your policy limits and consider increasing them to provide more suitable protection. Higher limits can reduce the likelihood of being underinsured.
- Umbrella Insurance: An umbrella policy provides additional liability coverage beyond your auto insurance limits. It can shield a wide range of situations, providing an extra layer of financial protection.
- Regularly Review Your Policy: Life changes such as purchasing a home, having children, or increasing your income can affect your insurance needs. Review and update your insurance coverage regularly to ensure adequate protection.
Being sued for more than your car insurance covers can have serious financial consequences. To protect yourself, ensure your policy limits are sufficient and consider additional coverage options like umbrella insurance. Regularly review your insurance needs to stay adequately protected.
The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.