Minimum Liability on Car Insurance Not Adequate for Most Drivers


Jane Young, CFP, EA

Jane Young, CFP, EA

The state of Colorado requires you to carry liability insurance in case you injure someone or damage someone’s property.  Colorado law requires liability insurance of at least $25,000 for bodily injury per person, $50,000 bodily injury per accident and $15,000 for property damage.   The law also requires insurers to offer uninsured/underinsured motorist coverage and medical coverage unless you waive them.   Generally, they also offer optional comprehensive, collision, towing and rental car coverage. 

However, the liability requirements set forth by the state of Colorado are not adequate for most car owners.  The amount of liability coverage you need is dependent on your net worth or what you have to lose, if you are at fault for an accident.  If you cause a serious car accident, where several people are injured, the medical expenses could easily cost hundreds of thousands of dollars.  With minimum liability coverage, your insurance is only obligated to pay $50,000.  In this situation, an attorney representing the injured parties would probably sue you for the rest of the medical expenses.  If you don’t have any assets this would be a futile effort, but if you have a lot of assets, this could wipe you out. 

As a general rule, according to Darrell Wilson a local insurance agent who operates Alliance Insurance Group of Colorado Springs, anyone with a reasonable level of assets should carry liability insurance of $250,000 – $500,000 for bodily injury per person, around $500,000 for bodily injury per accident and $250,000 – $500,000 for property damage.  He suggests looking at your personal situation to assess how much you have at risk.

In addition to liability insurance, be sure to carry adequate uninsured/underinsured motorist coverage.  According to Wilson, between 1 in 3 and 1 in 4 motorists are either uninsured or underinsured.  This coverage provides protection if you are in an accident caused by someone with inadequate insurance.  It’s advisable to set your uninsured/underinsured motorist coverage to levels similar to your liability limits.

If you have a reasonable level of assets you should also consider an Umbrella Liability Policy equal to 1 to 2 times your net worth.  Umbrella Liability insurance is usually above and beyond the coverage provided by your auto and home policy, but verify this with your insurance agent.

It’s advisable to meet with your agent to review your insurance coverage at least once every two years.  Periodically, you should also compare the rates you are paying, but make sure you are looking at comparable policies.  In addition to price, evaluate an insurance company’s financial stability and their record of customer satisfaction with previous claims.  On the internet, you can find information on financial stability through A.M. Best or Standard and Poor’s, and information on customer satisfaction through JD Power or Consumer Reports.   Also ask your friends and family for referrals, just about everyone has some experience with car insurance.

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