I had lunch on Wednesday with a client. We caught up with each other, discussed how our businesses are doing, and then I reviewed his current insurance coverage and potential changes he should consider. His business is growing, and that means he’s transitioning in how insurance is approached. In these cases, it means insurance changes from a tool that protects cars and homes to providing financial protection. The question we discussed was how much car insurance is needed to protect him and his family.
When we started his coverage a couple of years ago, the limits were matched to what he had with another agent. They were appropriate, more than Texas state minimums, but he’s outgrown them. Most people, like my client, have what are referred to as split limits. These limits are referred to as split limits because there are 3 numbers which may vary by State. Most Texas car policies utilize the following split limit levels:
- 30/60/25
- 50/100/50
- 100/300/100
- 250/500/100
- 500/500/100
Each number corresponds to a specific type of liability coverage the car insurance policy will pay when the policy holder, or insured, is involved in an at fault accident. For example, the coverage my client carries currently is 50/100/50.
The first number is the maximum amount paid to any individual in the car hit by the policy holder for medical attention, or in the case of my client, $50,000. The second number is the maximum amount paid for all individuals in the car hit by the insured, or $100,000 as my client has. Regardless of the chosen limit, no one person receives more than the first or individual number.
The third number is the maximum amount paid for damage to the car or cars hit by the policy holder, or $50,000 as my client has. That’s enough to cover a new Accord or Camry, but not enough for most Lexus, BMW, or Mercedes Benz models.
I usually do not recommend the Texas State minimum liability limits to any of my clients unless they simply can’t afford more, such as a recent college grad. Whenever I talk with an existing or prospective client about car insurance, I recommend each level of split limits based on the following rationale:
| Limits | Recommendation Criteria |
| 50/100/50 | This is the minimum limit I recommend as it will protect a new grad working in their first job if they hit most new cars. |
| 100/300/100 | For new home or condo owners & people with a combined household income of $50,000 to $100,000 a year. |
| 250/500/100 | People in middle to upper management, business partners, doctors, dentists, lawyers, architects, people with a swimming pool or trampoline, or people with a combined household income of $100,001 to $150,000. |
| 500/500/100 | Families with a combined household income of $150,001 or greater, the professions mentioned in the prior level, and home owners with a home valued more than $500,000. |
Based on my client’s improving financial position, I recommended he increase his limits to either 250/500/100 or 500/500/100. The rationale is these levels provide better financial protection for him and his family. They can also be coupled with an umbrella to provide even greater protection beyond his car and home insurance (see https://wiseinsurancegroup.com/whats-an-umbrella-policy-who-needs-one/).
How much car insurance do you need? Share your questions, comments, or experiences with me on my Google +, Facebook, or LinkedIn pages. I’d love to hear from you.
