Last month I gave an example of risk and liability exposure. Remember, consistently I have written that you need to make sure your liability limits on your personal auto and home insurance policies adequately cover your assets. These are third party coverages that protect other parties from your negligence. So, what is the cost of increasing your liability limits? Do you bite the bullet and pay the additional cost or do you roll the dice and take the risk?
The cost of increasing your liability limits depends on many rating factors. If you carry the minimum liability limits of $25,000/$50,000 on your auto policy and really need $100,000/$300,000, or higher, the cost would be higher than increasing the limits to $50,000/$100,000.
Typically, increased limits increase by about 25 percent per limit increment. So if you have limits of $25,000 per person and $50,000 per occurrence and a rate of $100, the next higher limit would cost $125 per vehicle. So you would be paying $25 for double the bodily injury liability coverage. Now these increased limit factors vary by the rating on your policy and by company. You need to talk to your agent to see what the cost would be for your individual policy.
If you do have significant assets and need higher limits of coverage, you need to consider an umbrella liability policy. This personal liability policy provides protection over and above the liability limits on your personal home and auto policies. It does not cover business exposure. The cost to most people is well worth the price.
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With most insurance companies, if you have a home and two vehicles, the cost to add a $1 million umbrella liability policy is around $175 a year. The more units of coverage you have the higher the premium. Each additional exposure, vehicle or second home would cost about $75 per unit. If you have young drivers in the household, they would also cost more due to the exposure. But given the frequency and severity of losses involving young drivers, this coverage is well worth it if you want to protect your assets.
Insurance companies would require you to increase your liability limits on your underlying home and auto policies to at least $300,000 for the home and $250,000/$500,000 on your auto policy. The requirement might be higher if you have young drivers. But is that not when you need the coverage?
Most people do not review their policies as life circumstances change. This is a mistake. As your assets increase and as your exposure changes you need to make sure your insurance policies keep pace. The time to find out if you have adequate cover or not is not when you have a claim. Use that ounce of protection.
Dave Pushman is the former regional vice president of Geico in Macon and is now an independent insurance agent with Tidwell and Hilburn Insurance. He can be reached at firstname.lastname@example.org.