Q

What happens if accident damage exceeds your car insurance?

A

If you are at fault in an accident you will be held responsible for all of the damage you cause, whether or not you have enough insurance to pay for it.

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By

Rachael Brennan

Rachael Brennan

Property and Casualty Insurance Expert

Rachael Brennan is a senior insurance editor at Policygenius, specializing in auto insurance. She worked for 21st Century Insurance, BlueCross BlueShield Massachusetts, and HealthPass New York. She also spent two years working as a content expert for dozens of auto insurance websites through 360Quote LLC.

Published September 23, 2021|5 min read

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Almost every state in the country requires drivers to have a minimum amount of liability insurance so that everyone is financially protected in the event of an accident. 

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Some states have very low minimum requirements—for example, drivers in Massachusetts are only required to have $5,000 in property damage liability, while drivers in Florida are only required to have $10,000 in bodily injury liability.

So what happens if you choose to purchase the minimum level of liability in your state and then total someone’s Audi? You will still be held responsible for all of the damage you cause, whether or not you have enough insurance to pay for it — and that means that you could end up paying tens of thousands of dollars (or more) out-of-pocket.

Key Takeaways

  • State minimum levels of car insurance often aren’t enough to protect you financially in the event of an at-fault accident

  • If a judge finds that you are responsible for the other driver’s costs after an accident, they can garnish your salary or place a lien on your property to force you to pay for the damage you caused

  • Drivers can protect themselves by purchasing high levels of liability coverage along with collision and uninsured motorist coverage

  • No-fault states require drivers to file bodily injury claims through their own insurance and exhaust their personal injury protection before suing the other driver

What happens if you cause more damage than your insurance covers?

Liability coverage is the part of your car insurance that pays for damage you cause to other people and their property in an accident. In a best case scenario, both parties in an accident have full coverage insurance with liability limits of 100/300/100 or more. 

This means they have bodily injury limits of $100,000 per person and $300,000 per accident along with $100,000 in property damage liability coverage (at least). But what about when one person only has the minimum liability levels required in their state, and the accident causes a significant amount of damage?

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If you cause more property damage than your insurance covers

Given the number of expensive vehicles on the road and the possibility of damaging a building or other structure in a car accident, it is definitely possible for the property damage you cause to exceed your insurance coverage. In an accident with a significant amount of property damage, there are a few ways the situation can play out.

  1. If everyone has enough coverage, the insurance companies pay the bills and sort out everything behind the scenes.

  2. If the at-fault party doesn’t have enough property damage liability coverage, they will be held liable for any costs that go beyond their coverage limits. If the other driver has collision coverage, their insurance company will repair or replace their vehicle and take the at-fault party to court to recoup their expenses.

  3. If the at-fault party doesn’t have enough property damage liability coverage and the other driver doesn’t have collision coverage, the driver who is not at fault will have to take the at-fault party to court.

If the other driver takes you to court and a judge finds that you are responsible for the costs the other driver incurred, they can garnish your salary or place a lien on your property (meaning they can take a little bit of your paycheck every week or take ownership of your home or other property) to force you to pay for the damage you caused.

If you cause more in bodily injury than your insurance covers

Bodily injuries in a car accident can be tricky business. Medical care in the United States is expensive, especially for emergency services, which means a serious car accident can rack up hundreds of thousands of dollars in medical bills. In an accident where people were seriously injured, there are a few ways the situation can play out.

  1. If everyone has enough car insurance coverage, the insurance companies pay the bills and sort out everything behind the scenes.

  2. If the at-fault party doesn’t have enough bodily injury liability coverage, they will be held liable for any medical costs that go beyond their coverage limits. If the other driver has supplemental coverage (uninsured motorist coverage, MedPay, personal injury protection, etc.) their insurance company will cover their additional medical costs and take the at-fault party to court to recoup their expenses.

  3. If the at-fault party doesn’t have enough bodily injury liability coverage and the other driver doesn’t have supplemental coverage, the injured party will have to take the at-fault party to court.

If a judge finds you are responsible for the other driver’s medical bills they will take steps to force you to pay those expenses, including garnishing your salary and putting a lien on your property. 

You could potentially be held accountable for pain and suffering or long term loss of income as well, so it is vital that you have enough liability insurance to cover these expenses.

Who pays for damage that exceeds the policy limits?

Every state holds drivers accountable for negligence while driving, so the at-fault party will be required to pay for any damage they caused that exceeds their policy limits.

That being said, some states are no-fault states that require drivers to purchase personal injury protection (PIP) insurance, which covers some or all of their medical expenses after an accident, even if another driver was at fault. 

States with PIP requirements usually have laws requiring drivers to go through their own insurance to pay their medical bills before they can take the at-fault party to court.

There are 17 states and territories that require drivers to purchase PIP insurance, including:

  • Arkansas

  • Delaware

  • Florida

  • Hawaii

  • Kansas

  • Kentucky

  • Maryland

  • Massachusetts

  • Michigan

  • Minnesota

  • New Jersey

  • New York

  • North Dakota

  • Oregon

  • Pennsylvania

  • Puerto Rico

  • Utah

How do I protect my assets after a car accident?

The best way to protect your assets after a car accident is to have enough liability coverage before the accident. Having enough liability coverage to pay for the worst case scenario will protect your paychecks, home, and other assets from being used to pay for the damage you caused. 

If you have significant assets that could be lost in court you should consider purchasing umbrella insurance in addition to choosing the highest available levels of liability coverage.

Umbrella insurance is additional liability coverage that can protect you if you exhaust the limits of your auto or home insurance. It also offers a wider range of coverage than a basic insurance policy, providing coverage for slander, libel, false arrest or imprisonment, and malicious prosecution.

How collision and uninsured motorist coverage can help if you’re not at fault

Liability insurance is important if you are at fault in an accident, but what happens if you weren’t at fault? 

Technically, the other driver’s liability insurance pays for damage if you are not at fault in an accident, but you could be hit by an uninsured or underinsured driver. You can take them to court, but that could take months or years before you receive a payment. If a car accident exceeds policy limits, there are two types of insurance that can help.

For property damage, if you have collision coverage your insurance will pay to repair or replace your vehicle. Drivers without collision coverage will likely need to take the at-fault party to court to be reimbursed the cost of repairing or replacing their car. 

For bodily injury, insurance companies typically offer uninsured motorist (UM) coverage as an add-on for your insurance policy. If you are hit by someone who doesn’t have enough insurance to cover your medical bills, UM coverage can make sure your medical expenses are paid.

UM is almost always sold to match your liability levels, so choosing higher liability levels can get you higher levels of UM coverage as well. Some states require you to have UM as part of their minimum levels of liability coverage. 

Frequently Asked Questions

What to do if a car hits you and runs?

If you are the victim of a hit and run accident, you should document all of the information you have about the other vehicle. Getting a license plate number, make, model, and/or color of the vehicle can help police identify it later. You should call 911 and file a report, providing the police with all of the information you have. Your collision coverage and uninsured motorist coverage can help you pay for any damage you suffered during the hit and run, but laws are different in every state, so check with your insurance agent for more information.

Can I lose my house due to an at-fault car accident?

It is possible to lose your home if you are underinsured and responsible for an auto accident. Some states have a homestead exemption, which means a home you live in cannot be taken to satisfy a judgement in court, but other states have no such law protecting your home.

How often do auto accident settlements exceed the policy limits?

It doesn’t happen often, but it is certainly possible. For most people who are in an accident, it is easier to settle out of court for the limit of the at fault driver’s policy. If damage were significant or the injured party has no other recourse, it isn’t uncommon to push for a settlement that exceeds the policy limits.