The MOST Important Provision of Your Auto Insurance Policy
UNINSURED AND UNDERINSURED MOTORIST COVERAGE
Insurance company's sell automobile insurance policy's based upon "liability limits" or "coverage limitations". Most people approach purchasing a policy by asking the agent or broker, "what is the cheapest coverage I can afford"?
- This is 100% the wrong way to approach purchasing automobile insurance.
The first question you will be asked when buying insurance is:
- How much coverage do you wish to purchase?
When you are asked this question, the agent is referring to "liability" insurance which protects the other party with whom you may have an accident. Liability insurance will also protect the passengers in your vehicle if you are at fault for causing the accident.
Liability insurance provides financial protection to individuals who are not paying the premiums or are not insured's on the policy, and provides you, the insured, and the person paying for the coverage, no financial benefit in the event of an accident.
My approach to buying auto insurance coverage and the purpose of this article is to convince you, as a consumer, never to buy an automobile insurance policy based upon the liability provisions of an insurance policy. The old adage, "do unto others as you would like done unto you" applies when you are shopping for automobile insurance. Therefore, my advice is simple:
- Always buy your auto insurance policy based upon the uninsured and underinsured motorist coverage limits. Ignore the liability provisions and focus on the most important coverage contained in the policy.
The chances are significant that the uninsured and underinsured motorist coverage will provide you the insured, and payer of the policy premiums, with compensation should you be injured in an accident which was not your fault.
Having adequate uninsured/underinsured insurance means that if you are in an accident which was caused by someone else, and that individual does not have sufficient insurance coverage to cover your damages and injury, you can file a contractual claim with your own insurance company and receive the money you are due and entitled to receive. You control the policy limits!
Uninsured and underinsured motorist coverage, can save you from financial ruin in the event of a costly accident.
Many people I talk to tell me that it does not seem fair to have your own insurance company pay damages for something which is not your fault. True, but I never understand this perceived desire to protect the insurance company. Life is not fair. You should evaluate your circumstances and decide that having significant uninsured and underinsured motorist's coverage is always worth the cost.
- The benefit of having large limits for uninsured and underinsured motorist coverage, far out weighs the cost of the premium.
If you are buying other types of auto insurance coverage such as collision, rental car, towing and medical payments, getting adequate uninsured and underinsured motorist coverage does not add much in premiums to your premium. You will be surprised at how affordable uninsured and underinsured motorist coverage premiums are when you analyze your policy. Like other types of auto insurance, the amount of money you expect the insurance company to pay determines your premium.
The easiest way to understand the importance of uninsured and underinsured motorist coverage is with these 2 simple examples.
Example 1 (Uninsured Motorist Coverage)
Joe (driver) and Sally (passenger) are in an accident which is not their fault.
Mary, the lady who hit Joe and Sally is "at fault" for the accident. Unfortunately, Mary has no insurance on her car.
Joe's injuries are serious.
Joe has spent 3 weeks in the hospital. He will be in rehabilitation for 6 months and Joe has a claim which may be worth, $250,000 or more in compensation.
Unfortunately for Joe (the driver), his insurance agent sold him Ohio minimum insurance which provides $12,500 in liability coverage. Joe also purchased $12,500 in uninsured and underinsured motorist coverage with his state minimum policy.
As a result of these facts, Joe can collect $12,500 of the $250,000 he is entitled to receive from his own uninsured motorist coverage and will sustain a real life loss of $237,500 ($250,000 - $12,500) because Mary is uncollectable. In real life......people rarely recover beyond the limits of insurance coverage. Mary has no assets to cover the $237,500 difference between what Joe is due and what Joe is actually paid.
Alternatively, Joe's friend and passenger in the car Sally also sustained injuries similar to Joe which may be worth $250,000 or more in compensation.
At the time of the accident, Sally, a passenger, had her own insurance policy with uninsured motorist coverage in the amount of $500,000.
Sally gets paid in full as she can collect every dollar of the $250,000 to which she is entitled to receive from her own insurance company under her uninsured motorist coverage.
In hindsight, Joe is very upset because the difference in premiums between his policy for $12,500 and Sally's policy for $250,000 is negligible.
Example 2 (Underinsured Motorist Coverage)
Same facts as #1 above; however, Mary the at fault driver has an insurance policy providing $25,000 per person and $50,000 per accident in coverage.
Joe can collect $25,500 from Mary and can not use his own policy because as toward Mary his is not underinsured because he only had a $12,500 policy himself. Mary's policy is larger than Joe's policy. As such, Joe is not entitled to underinsured benefits.
Sally can collect $25,500 from Mary's company and will get the balance of her compensation from her own underinsured motorist coverage. Mary would collect the other $225,000 from her own insurance company ($250,000 - $25,000 = $225,000).
I see real life situations like these examples day in and day out. In reality, there are a lot more Joe's in this world than there are Sally's and it makes me very upset.
Please carry as much uninsured and underinsured motorist coverage as you can afford. It is money well spent.
