Lately, I can’t watch television without seeing an advertisement for auto insurance that talks about customizable auto insurance. The sales pitch is that you only pay for the insurance you need. In fact, for some insurance companies, that seems to be the focus of their entire marketing campaign. However, there’s one big problem with this – how does the average person know what they really need?
The reality is that there are a ton of insurance companies that are all fighting to insure drivers. It’s a very competitive industry, which is why you see so many advertisements. As a result, insurance companies, at least the ones that heavily advertise, almost always focus on having the lowest rates. These insurance companies want your business, even if it means selling you a cheaper policy than you might actually need. Because let’s face it, for many people, the price of the policy is the only factor they are considering.
If you have limited finances and no assets, then getting the cheapest policy possible may be the right move for you. However, if you want a higher degree of protection and if you have just about any appreciable assets, you need to consider paying more for a higher level of protection. To better appreciate why you need sufficient coverage, you need to understand how insurance works as a shield and as a sword.
Most people understand that insurance shields them from liability. In simple terms, if you cause a wreck and cause injury or damage to another person, then your insurance covers that. That makes sense and if you cause a small wreck with minimal injuries or property damage, even minimum limits insurance should cover all of the payments needed. But have you considered what happens if the injuries or damages you cause are greater than the insurance you have? The short answer is that you could be financially responsible for the amount of damages above your insurance limits. So if you cause a serious injury, you could be responsible for a large sum of money.
For example, assume you choose the cheapest auto policy you can buy. In North Carolina, this is $30,000 per person / $60,000 per occurrence policy. Let’s further assume that you cause a wreck that causes another driver to spend a couple of nights in the hospital and they end up missing work for a while. As a result of their medical bills, lost wages and pain and suffering, they file a personal injury claim against your insurance policy and have a claim worth $50,000. If you have a minimum limits policy, your insurance company is going to pay up to the $30,000, but that’s it.
Your insurance company will have paid the full amount of your coverage, so they’re not going to pay for anything further. At that point, the injured person can come after you, personally, for the remaining $20,000. If you have worked to create some financial security by saving money or assets, those assets would be at risk in a situation like this, where you cause injuries that exceed the insurance coverage you purchased. And this example discussed a claim worth only $50,000. What if you were to cause catastrophic injuries to one or more persons? Failing to have sufficient insurance could wipe out everything you’ve worked for or bankrupt you. Therefore, if you have worked to build up assets, it’s essential that you pay a little extra for sufficient coverage. I would recommend at least $100,000/$300,000 and even more coverage if you can afford it.
The flip side to this, which is generally much less understood, is how your policy can be used as a sword. Underinsured (UIM) coverage is there for you to use when you’re injured by someone else and they don’t have sufficient insurance coverage to pay for your claim.
So, in the previous example, let’s turn the tables. Now you’ve been hit by a driver and you have a claim that’s worth $50,000. However, the other driver only has a $30,000 minimum limits policy. Their insurance company has gone ahead and paid their $30,000 and is done with the matter. What about the remaining $20,000 you are owed? That could come from the other driver’s personal assets. But let’s assume they have minimal earnings and no personal property or assets to their name. This is an all too common reality and in such a case, there really is no point in going after someone who has no money to pay. The much better alternative is to use your own UIM policy to make up the difference.
So in this example, if you had at least $50,000 in UIM coverage, your insurance policy should step in and pay the $20,000 difference between the other driver’s $30,000 policy and the $50,000 your claim is worth. And since you didn’t cause the wreck, your use of your UIM policy should not cause your rates to increase, so there should not be downside.
One point to consider is that nearly all states, including North Carolina, do not allow you to purchase more UIM than your liability limits. In other words, you can’t have minimum limits liability coverage and then $100,000 for UIM.
As a personal injury attorney, I can assure you that I am well-versed in the downside of the insurance industry. However, as I have written before, insurance is necessary and while you hopefully will be lucky and never need it, if you do, you’ll be happy you have the amount of coverage you need. We constantly have to have tough conversations with people about cases where the value of the case well exceeds the amount of insurance available. And quite frankly, the majority of people out there don’t have any personal assets that are worth going after. Therefore, if you have any assets of your own that you want to protect or you want to make sure you have a resource for the recovery you deserve if you’re hit by an underinsured driver; do you yourself a favor and spend a little more on better coverage. Because only paying for what you need shouldn’t mean paying the bare minimum.