Liability limits cover the other persons in an accident that you cause. Without enough liability coverage, you are required to pay for the damages to the other person out of your own pocket, or you are subject to a lawsuit against you. In order words, if you care about protecting your assets, or not having to pay for the damages out of your own pocket, you need to buy enough coverage limits for your car.
Liability coverage is the required coverage in order to drive legally. Each state has its own set of minimum liability coverage that drivers must buy. California state limit is 15/30/5. Remember these limits were set in 1982, when cost of living was ten or more times cheaper than now.
Making sense of the numbers:
15: Insurers pay maximum of $15,000 for bodily injury per person that you hurt.
30: Insurers pay maximum $30,000 for bodily injury to all injured people that you cause.
5: Insurers pay maximum of $5,000 for property damage to the car (or cars) that you damage in an accident.
Having car insurance at the State minimum is often too low to actually cover the damage sustained in auto accidents. The medical bills for ambulance & 1 day in the emergency room can easily cost in excess of $15,000!
What this means to you is that you are liable for paying the rest of the expense out of your pocket. If you don’t pay it, you might be sued by the other party & you may lose your hard-earned assets, plus your income could be garnished until your debt is paid off.
Since we don’t know how much liability damages could climb up to, if you get into an at-fault accident, I advise you to buy at least the coverage limits that equal your asset value & not less than 100/300/100.
If you possible, buy the highest limits that your insurer offers. The difference in premiums is only about $22 a month between the State minimum (15/30) and 250/500 and only $4 more between 250/500 and 500/500! Do you see how little it costs to pay for higher limits, while receiving 200% to 300% more in protection? This is called smart spending!