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How to know if you have enough auto insurance

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There’s nothing like a good scare to send us all scurrying to our to see what our coverage is. This month, those of us who have followed the story of and the Fisher family got one.

took to his Tumblr and to call out Progressive for the fact that, in his words, his sister had paid the company premiums only to have it defend her killer in court after her death in an .

Indeed, Progressive tried to convince a jury that the crash was her fault. The company lost and ended up paying the Fishers’ claim plus a settlement, and Progressive also took it on the chin on national television.

In last week’s column, I gave Progressive an opportunity to explain what it was thinking when it lined up against Katie Fisher in court. But now the rest of us are left with a couple of uncomfortable questions.

Does it really make sense to pay more for maximum coverage? And what does it really mean to be underinsured anyway?

Some of this isn’t up to us, because most states require you to have at least some auto insurance. Still, it’s worth looking at a couple of areas where vulnerability can be particularly (in case you hurt or kill someone else) and the uninsured or underinsured motorist coverage that was at stake in the Fisher case.

Then, we can see what our odds are of needing to make a claim and how comfortable we are making bets accordingly.

The odds of running into people with no insurance at all to pay for your claims against them are probably higher than you think. The Insurance Research Council’s most recent estimate, from 2009, is that 13.8 per cent of all United States drivers have no insurance at all. In Florida, it’s 23.5 per cent, and in Michigan it’s 19.5 per cent.

estimates that about 20 percent of people who do have insurance purchase just the minimum liability coverage in case they hurt someone else. Their policies may pay out as little as $25,000 in many states. That’s why Kirby Francis remains glad six years later that his parents had $500,000 in underinsured motorist coverage back when someone crossed a highway line in Oregon and hit him head-on while he was driving home from college.

The other driver, who ended up dead in a canyon 200 feet below the road, had just $50,000 in coverage. By the time Mr. Francis punched his way out of his burning vehicle, with a lacerated spleen, a broken tibia, and his elbow in six pieces, he was in need of $130,000 in operations and other medical care, including radiation treatments for his arm that his health insurer wasn’t going to pay for. He also said that he received a $200,000 settlement for his troubles, beyond the reimbursement for medical costs that mostly went to his health insurance company.

So, what would it cost to lock in better coverage? The industry-supported Insurance Information Institute figures it costs about $200 extra annually per vehicle to take your liability limit from $50,000 to $1 million per accident.

Gonzo drivers with sketchy records may pay more. Raising your uninsured and underinsured coverage by similar amounts could cost less than half that amount.

Taken together, that’s not an enormous amount on a percentage basis on top of what may be an annual insurance bill of $1,000 or more.

Still, many of us will tell ourselves all sorts of stories about why this isn’t necessary. For instance, we may figure that no one is going to come after us beyond whatever minimum amount our insurance policy will pay. But if you’re at fault and don’t have enough insurance, the job of plaintiff’s lawyers is to track down both the assets you have now and the ones you may accrue later. They may keep an eye out for any future windfall long after any judgment and then try to use it to satisfy whatever you still owe.

Or perhaps we think we’re suckers for buying more insurance, since those same lawyers will then inflate claims in order to extract money from both the insurance company and our assets.

But that’s not how it works in the real world, according to , president of the New York State Trial Lawyers Association. “There’s always a jury trial that is potentially out there,” Mr. Jaffe said. “So I’m not going to get 5X just because someone has an insurance policy instead of X. A person’s insurance policy is not going to change the legal value of the case.”

The trial lawyers’ association backed a bill, which recently passed the Legislature, that would automatically increase uninsured and underinsured coverage (and hit-and-run motorist insurance, which is included in those policies) when consumers elect to buy more liability coverage. Drivers can still choose to opt out of increased uninsured coverage, however.

Given the long odds of a bad wreck with a big claim, you could roll the dice on inexpensive insurance and simply declare bankruptcy if you hurt someone badly enough. Anyone suing you probably won’t be able to get at your retirement savings in a 401(k) or similar plan or an individual retirement account and, in some states, may not be able to extract your home equity either.

This is not a bulletproof strategy, however, according to , a Durham, N.C., bankruptcy lawyer. He notes that if you’re driving while under the influence, any judgment will stick with you even if you do file for bankruptcy. An injured party may also be able to prevent you from discharging a judgment if they can persuade a jury that your error on the road was somehow willful or malicious.

So we begin this process with what we think is a rational look at the numbers. We assess our assets and consider what money we might earn, win or inherit in the future. And again, that money might be vulnerable long after any judgments against us, since judgments tend to live on long after any trial.

But what we’re really talking about here is risk tolerance — how we feel after all we take in all of the data about the long odds of losing everything. “Not to be overly dramatic, but in some sense, when you pull out of that garage, you’re putting that at risk,” said , a financial planner with the insurance company USAA.

Yes, he works for an insurance company, albeit on a salary that does not include incentives based on what he sells. But it helps frame the overarching questions in the right way.

Is it worth saving $25 or so a month to leave yourself exposed to the highly unlikely worst case? Or would you sleep better at night knowing that you could cross that off your list of things to worry about, assuming your insurance company doesn’t fight you or your heirs in court as Progressive did with the Fisher family?

I’m with the sleep-better crowd. But the only wrong answer to the question results from not considering all of the facts when asking it in the first place.

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