UPDATED: Mar 13, 2020
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Assets are the economic resources available to an individual or business. This can include physical or tangible assets – like cash and stocks. It can also include intangible assets – like intellectual property. In a broader sense, ‘assets’ refers to anything that has value – from the $20 bill in your wallet to your $400,000 house.
The term ‘assets’ may come up in certain car insurance negotiations. Typically, assets play a role when discussing liability. Someone who was injured by an at-fault driver may target the at-fault driver’s assets in a lawsuit, for example. Drivers with high net worth have more to lose after an accident and may protect their assets with umbrella coverage.
Types of Assets
Some of the most common types of assets include:
- Cash and cash equivalents
- Homes or businesses
- PPE (property, plant, and equipment)
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How Much Car Insurance Do You Need? Consider Your Assets
“How much car insurance do I need?” is a question we get asked almost every day. One of the best ways to answer this question is to consider your assets.
What is your net worth? How much can you afford to lose? How much value do your current assets have in total? Based on your answers to these questions, you might consider getting more or less car insurance coverage.
Drivers with a higher net worth will want to consider umbrella coverage, which extends liability limits to $1 million, $2 million, $4 million, or even higher.
Why Assets Are Important for Car Insurance
Let’s say you have the bare minimum bodily injury liability coverage for your home state of California, which is $15,000 of bodily injury liability coverage per person and $30,000 of bodily injury liability coverage per accident.
You collide with another vehicle at a traffic light. The accident was 100% your fault. The driver and her passenger are severely injured and require $200,000 worth of medical treatment each.
Because you caused the accident, you are personally liable for making everyone ‘whole’ again after the accident. You are required to pay for the medical bills of any injured parties. Fortunately, your car insurance covers your liability – but only up to the limits of your policy. Your car insurance covers the bare minimum, which is $15,000 of bodily injury liability coverage per person and $30,000 per accident. This covers only a small portion of the amount you owe, and you still owe the remaining $170,000 per person.
This liability falls on you. You are required to pay the remaining $170,000 per person, or $340,000 total.
The average American does not have $340,000 in cash in their bank account. They may need to sell a property, sell stock holdings, and liquidate other assets to cover the amount owed.
Of course, there could be other expenses resulting from the accident. The two injured parties could sue you for pain and suffering, for example. You are also required to pay for vehicle damages, ongoing physical therapy expenses, and other potential costs.
If the total value of your liquidated assets does not cover the total amount you owe, then you may have to declare bankruptcy – all because you didn’t have sufficient levels of car insurance to protect your assets.
Umbrella Coverage, Assets, and Net Worth
If you have assets that could be seized, then you should consider getting umbrella coverage. Umbrella coverage is a unique type of liability insurance that can raise your liability limits to $1 million, $2 million, or higher.
Or, simply raise your car insurance liability limits far beyond the minimum required for your state. Many insurers let you easily increase your limits to $500,000 or $1 million, for example.
With or without umbrella coverage, you are personally liable for any and all costs after an at-fault accident. Without umbrella coverage, your assets may be targeted in a lawsuit. With umbrella coverage, your assets are protected (up to the limits of your umbrella policy).
Ultimately, everyone has different insurance needs. Consider your assets and net worth to make sure you get the right car insurance for your needs.