Regarding car insurance, those with sizeable disposable income have unique requirements.
How much liability coverage does a person with a high net worth need on their vehicle insurance policy? Can you recommend a reasonable amount for umbrella insurance or liability protection? Here, we’ll break down the specifics of auto insurance premiums based on your net worth so you can make an informed decision.
The Importance of Having Extra Car Insurance for the Super-Rich
Let’s pretend that two people, one wealthy and the other poor, are sharing a car and traveling down the same street. Why does a person with a high net worth require more comprehensive car insurance?
The wealthy person has more at stake.
Say you’re at fault in a collision. You blundered, and you have to take full responsibility for what happened. A family of five is inside the minivan you just hit. They’ve all been seriously hurt and will need extensive hospitalization.
To the extent that other people are hurt because of your careless driving, you must compensate them. Injured individuals are entitled to compensation for their losses, including medical costs, missed wages, and car repairs.
Supposing the sum is $300,000. To make the aggrieved parties whole again, you must pay $300,000.
The low-net-worth person has a total of $20,000 in assets. His auto insurance coverage will pay for damages up to the policy’s maximum, which in this case is $100,000, for all who were hurt in the accident. The person with a low net worth must come up with the remaining $200,000. However, he only has $20,000. The individual declares bankruptcy after selling off all of their possessions.
On the other hand, the ultra-wealthy person has assets worth more than $5 million. The first $100,000 in damages that she must pay because of the accident are covered by her affordable car insurance. The remaining $200,000 must be paid by her means. She cannot file for bankruptcy because her assets are sufficient to pay off the debt.
Wealthy motorists involved in accidents may be subject to closer scrutiny
Extra car insurance is purchased by the wealthy because of the increased risk of scrutiny in the event of an accident.
Let’s pretend a famous actor or actress has been drinking heavily and gets behind the wheel. He hurts a person on the street when he hits them. The pedestrian and his attorney may see this incident differently than if he had been hit by a drunk driver returning from a low-paying service industry job. The star is at greater risk.
To file a lawsuit against a driver with a lower net worth is often not worthwhile. The driver with less wealth has fewer assets that can be taken in case of a lawsuit. A pedestrian may be awarded $500,000 in damages in a successful claim against a driver. Still, the pedestrian will likely never see any of that money because the driver will likely file for bankruptcy.
Contrarily, it might be well worth it to file suit against a wealthy person. More assets mean more potential damage in a case.
After an Accident, the Needs of affluent Motorists Vary
Another reason high-net-worth motorists have specific insurance requirements is their unique needs in the aftermath of an accident.
Consider a wealthy driver who hits an uninsured driver. If the other driver does not have auto insurance, the well-to-do driver’s insurer will be responsible for paying any damages or medical bills incurred due to the accident.
The typical uninsured motorist policy may only pay up to $100,000 in accident-related costs.
But the costs of driving for a wealthy person can be much higher. If the wealthy motorist is rendered unable to work, they may suffer a more significant financial setback than someone earning the federal minimum wage. Uninsured motorist coverage for a rich driver who wrecks a $2 million car would be swiftly depleted if they couldn’t afford the mortgage or rent.
A wealthy person may also choose a more expensive-to-maintain vehicle. A Ferrari door replacement will be more expensive than a Chevy door replacement.
When it comes to auto coverage, how much do high-net-worth people need?
A typical liability limit for Most affordable car insurance in Wisconsin is from $500,000 to $1,000,000. For the majority of scenarios, this is plenty for the typical driver.
However, premium auto insurance can increase liability limitations to at least $2–5 million. For instance, the liability limitations on a luxury auto policy might be $2,000,000 for injuries and $500,000 for property damage.
Think About Getting an Umbrella Policy
Wealthy people often purchase “umbrella” insurance policies. When compared to a standard affordable auto insurance policy, umbrella coverage allows you to increase your liability limits significantly.
For instance, umbrella insurance may quickly and painlessly add millions to your existing liability coverage, protecting you fully against various risks.
You don’t need to have a lot of money to think about purchasing higher liability limits on your auto insurance. The insurance company might have taken your money and property if you were at fault in an accident. Choose the correct liability limits for your low-cost auto insurance based on your financial situation and risk tolerance.