What Happens If My Car Insurance Does Not Cover All the Damages in an Auto Accident?

It’s a simple law: if you own or lease a personal car or truck, you’re required to have auto insurance. If it’s your personal vehicle, you need personal auto insurance. If it’s a company vehicle, you need commercial auto insurance.

In New York state, you’re required to have certain minimum levels of auto insurance, such as $50,000 for liability insurance and $10,000 for property damage, although many people have $25,000 or $50,000. If you lease a car, the bank will often require you to have as much as $350,000 for liability and $500,000 for property damage.

Why do I even mention this?

Because if you’re at fault in a car accident, and your insurance does not cover all the damages, you risk losing all your personal assets.

Some time ago, I had a client who owned a dry cleaning business and had done fairly well for himself. He had a house, a healthy retirement account, and was close to retirement. One day, he was involved in an accident with a motorcyclist who suffered some very serious injuries.

His auto insurance was not enough to cover the motorcyclist’s medical bills, and the motorcyclist’s legal team was able to seize my client’s assets, anything in his name, in order to cover those bills. My client lost his dry cleaning business, his car, his house, and everything in his bank accounts.

If nothing else, this story underscores the importance of having enough auto insurance.

If you’re involved in an accident and have $350,000 of coverage, but they’re suing you for $1.5 million, they’ll come after everything in order to pay that amount, including your house. If you want to avoid that possibility, there are three solutions that can help protect you.

1. If you’re married, make sure your house is owned as a tenancy by the entirety. A Tenancy by the entirety property is a residence jointly purchased by a married couple as their primary residence. This joint ownership is seen as a single, indivisible unit as if they were one person. This means if the first person is indebted to a creditor (such as a lawsuit), the property cannot be seized to pay off those debts.
2. Put an asset protection plan into place, and put things like rental properties and business assets into separate holding companies. Or place assets in trusts or overfunded life insurance policies.
3. Carry more than the minimum insurance. In fact, the more assets you have, the more insurance you need. The rich and successful often have targets on their backs, and people are more likely to sue for bigger damages if they’re hit by a surgeon than if they’re hit by a bricklayer. So ask an insurance professional what he or she recommends for your particular situation.

Ultimately, every car needs auto insurance, regardless of how it’s used, or how often. And it’s critical that you have as much coverage as you can afford, especially in the face of everything that could go wrong. Whether you’re involved in just a small fender bender or a serious accident, you need enough insurance to protect you and your passengers from serious financial harm.

But it’s also important to protect your personal and business assets from possible seizure, so you should have an asset protection plan in place for just such a possibility. That should all start now, long before you even have a hint of trouble.

Levoritz Law Group can help people set up trusts, asset protection plans, and establish their homes as tenancy by the entirety. For more information, or to talk with an attorney about other legal matters, please contact us.