How to Protect Your Assets with Insurance
The liability limits on your car insurance policy are what keep a bad accident from reaching your savings, your home, or your retirement accounts.
Raise your liability limits well above the state minimum
The state minimum liability limit is set low on purpose, to meet a legal requirement, not to cover what a serious accident actually costs. If you cause a crash that injures someone or damages expensive property, the state minimum can run out fast, and you're personally responsible for whatever it doesn't cover.
This matters more as you have more to protect. A driver with a paid-off house and retirement savings has more exposed than a driver with little property. Raising your bodily injury and property damage limits, and adding an umbrella policy if your insurer offers one, puts more of the insurance company's money between a lawsuit and your assets.
What you own changes how much coverage makes sense
Someone can generally only sue you for what you have. If your assets are modest, a judgment against you may be hard for someone to collect on, and very high limits may matter less. If you own a home, have retirement accounts, or have savings built up over decades, there's more a judgment could reach.
An umbrella policy is built for this. It sits on top of your auto and home policies and pays out after their limits are used up, usually for a lower cost than raising the underlying auto limits to the same amount. Most insurers that offer umbrella coverage require you to carry a certain liability limit on your auto policy first, so ask what your insurer requires before you buy one.
If you're retired and living on fixed income, remember that an at-fault accident doesn't just threaten savings you have now. A judgment can also reach future income or assets you acquire later, depending on your state's rules on collecting judgments.
Your driving record and the cars on your policy also matter
Insurers price liability coverage based on risk, and your driving record is part of that. A clean record generally keeps the cost of higher limits down, while past accidents or violations can make raising limits more expensive right when you need them most.
The type of car you drive factors in too. A larger or more powerful vehicle can cause more damage in a crash, which is part of why insurers weigh it when pricing liability coverage.
If you're on a fixed income and worried about the cost of higher limits, ask your insurer about discounts you may qualify for, such as a mature driver course, bundling your auto and home policies, or a lower mileage driven each year since retirement. Savings there can help offset the cost of carrying higher liability limits.
Questions people ask about this
Does my car insurance cover a lawsuit after an accident?
Your liability coverage pays for legal defense costs and any settlement or judgment, up to your policy limit, if someone sues you over an accident you caused. Once the limit is reached, you're responsible for the rest yourself. This is the main reason to check your limits rather than assume the state minimum is enough.
What is an umbrella insurance policy and do I need one?
An umbrella policy adds liability coverage on top of what your auto and home policies already provide, and it pays out after those limits are exhausted. It tends to make the most sense for someone who owns a home, has retirement savings, or otherwise has assets a lawsuit could reach. Ask your insurer what underlying auto and home limits they require before they'll sell you one.
Can I be sued for more than my insurance covers?
Yes. If a judgment against you is larger than your liability limit, you're personally responsible for the difference, and that can include savings, investments, or other property depending on your state's collection rules. This is the core reason to carry higher limits once you have assets worth protecting.
Does my insurance company protect my assets or just pay claims?
Your insurer pays claims up to your policy's limits and typically provides a legal defense if you're sued over a covered accident. It isn't managing or protecting your assets directly. The protection comes from the size of your limits matching what you have to lose, which is something you decide with your insurer when you set up the policy.
Should I drop collision or comprehensive coverage as I get older?
That depends on your car's value and your own finances, not your age. Collision and comprehensive coverage pay to repair or replace your own car, so some older drivers with paid-off, lower-value cars choose to drop them and set that money aside instead. This is a separate decision from liability coverage, which protects against claims other people make against you.
See what it would cost to raise your liability limits before you decide what's enough.
Pull out your current policy and check the liability limits listed on the declarations page. Add up roughly what you have in savings, retirement accounts, and home equity, and compare that to your current limit. Call your insurer or agent and ask what it would cost to raise your bodily injury and property damage limits, and ask separately whether you qualify for an umbrella policy and what it requires. If you're on a fixed income, ask about any discounts you haven't already claimed, since they can help offset the cost of carrying more coverage. Do this before your next renewal, not after an accident has already happened.
