How Much Coverage Do You Need

In general, you are required by law to have Liability coverage (Bodily Injury and Property Damage). There are minimum coverage amounts required by your state, and, if you are buying or leasing a vehicle, there may also be minimum amounts required by your insurance company and/or lien holder (bank, finance company, etc.).

The main part of your insurance protection, and the one that is required by law in most states, is your Liability coverage. A part of Liability coverage is Bodily Injury, which covers injuries to a person as a result of an accident. Within Liability coverage there is also Property Damage, which covers damage to or loss of someone else's property. While each state has minimum requirements, you also need to consider how much insurance coverage you need to protect your personal assets as well.

If you do not have adequate coverage, and you are sued, the court could order you to pay more than your limit of Liability coverage. You would, then, have to dip into your personal assets to cover the amount ordered paid by the court. Therefore, if you have a home, bank accounts and a reasonably well paying job, you should buy more Liability coverage than the minimums required by law. Many experts recommend at least $100,000 per person and $300,000 per accident for Bodily Injury and at least $50,000 for Property Damage .

Others experts insist even those amounts might not be enough. The more assets you have, the more you need to protect. So, you may want to estimate your net worth and use that figure as a basis for determining how much coverage you would need. To do this, total:

• the equity in your home and other property.
• the value of major possessions such as automobiles and art (less any amount that may be securing a debt).
• any savings or liquid investments you have.
• any non-IRA or employer provided pension or retirement benefits you have.

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