By Rob Lamb, licensed in property/casualty and life/health insurance
Soliman Insurance and Financial Services, 602-842-2333
As a personal lines insurance agent quoting auto insurance for prospective clients, I often hear, “I’ve got full coverage.” Prospective clients often look perplexed when I ask them what they mean by “Full Coverage?” Full coverage, to most consumers, means they have Comprehensive (also known as “Other than Collision”) and Collision coverage on their policy. But, are you fully covered?
If your car gets hail damage, for example, your comprehensive coverage is the coverage that would repair your vehicle minus your deductible. If you are considered “at-fault” in an accident, the collision coverage could be used to repair your vehicle less the cost of the deductible. In the same “at-fault” accident, what about the people who may be injured in the other vehicle? What about the cost to repair their vehicle? This is where you really want to be “fully covered”! The liability portions of your auto insurance policy are quite possibly the most important part of your coverage, and depending on your driving habits, these could be the least expensive portions of your policy.
Most states set “minimum” liability coverage amounts all resident drivers are required to have on their auto policy. For example, in Arizona, where I am an insurance agent, the state minimum coverage amounts are $25,000/50,000/$15,000, commonly referred as (25/50/15). These are the coverage limits of liability the insurance company is going to pay out to the other party injured as a result of you being deemed “at-fault” in an accident.
The ways these numbers breakdown is like this:
The $25,000 and $50,000 represent the bodily injury limits of liability.
$25,000 maximum per person and $50,000 maximum for the entire accident for bodily injury damages to include items such as: transportation to the hospital, medical bills, rehabilitation costs, loss of income, and numerous other costs associated with the bodily injury of the victim.
Example: The other vehicle has 2 passengers. Passenger 1 has $35,000 of medical bills associated with the accident, and Passenger 2 has $10,000 of medical bills associated with the accident. Assuming you had the Arizona state minimum liability limits, your insurance company would pay $25,000 of Passenger 1’s medical costs and $10,000 of Passenger 2’s medical costs leaving a remaining $10,000 of Passenger 1’s bodily injury liability you are responsible to pay.
The $15,000 represents the limit of property damage liability the insurance company will pay out to the other parties involved in the accident.
Example: The cost to repair (or replace via “totaling”) the vehicle damaged as a result of the accident above is $16,000. Your insurance will pay $15,000. Again, leaving you short, and responsible to pay an additional $1,000 to the other party involved in the accident.
As a result of the accident in the example above, you are liable (responsible to pay) for an additional $11,000 out of pocket. Each state has laws, if taken to court, the other party can use to legally remedy the shortfall. Often times, these result in a judgment lien of some sort to extract the shortfall from you if you do not have the $11,000 immediately on hand. This lien could result in a wage garnishment (up to 25% of gross income in Arizona).
But you had full coverage didn’t you? Or did you?
Insurance serves two purposes: transfer of risk, and to make you whole again after an accident. It is not intended to make you rich, or improve your position. It is intended to transfer the cost (risk) of a very big claim from you to the insurance company for a considerably smaller monthly premium (smaller than the cost of the claim). Full coverage insurance is more than whether or not there is Comprehensive and Collision coverage on the policy. Having the right amount of liability insurance coverage is very important, relatively inexpensive, and sadly many consumers do not have enough to cover the cost of an accident and protect the things they have worked so hard to acquire. When you are considering how much liability insurance to purchase, considering asking yourself one question: “How much of the claim am I willing to pay if I have a really bad accident?”
When shopping for auto insurance, of course you will need to consider the cost of the premium. However, when setting the liability limits, you should also consider what assets you may have: savings, 401k, IRA, or wages. Each consumer’s “risk threshold” is as unique as the individual and is dependent on their financial situation. Hopefully you will avoid the old adage of: “counting pennies and throwing away dollars.”
Soliman Insurance and Financial Services, 602-842-2333
As a personal lines insurance agent quoting auto insurance for prospective clients, I often hear, “I’ve got full coverage.” Prospective clients often look perplexed when I ask them what they mean by “Full Coverage?” Full coverage, to most consumers, means they have Comprehensive (also known as “Other than Collision”) and Collision coverage on their policy. But, are you fully covered?
If your car gets hail damage, for example, your comprehensive coverage is the coverage that would repair your vehicle minus your deductible. If you are considered “at-fault” in an accident, the collision coverage could be used to repair your vehicle less the cost of the deductible. In the same “at-fault” accident, what about the people who may be injured in the other vehicle? What about the cost to repair their vehicle? This is where you really want to be “fully covered”! The liability portions of your auto insurance policy are quite possibly the most important part of your coverage, and depending on your driving habits, these could be the least expensive portions of your policy.
Most states set “minimum” liability coverage amounts all resident drivers are required to have on their auto policy. For example, in Arizona, where I am an insurance agent, the state minimum coverage amounts are $25,000/50,000/$15,000, commonly referred as (25/50/15). These are the coverage limits of liability the insurance company is going to pay out to the other party injured as a result of you being deemed “at-fault” in an accident.
The ways these numbers breakdown is like this:
The $25,000 and $50,000 represent the bodily injury limits of liability.
$25,000 maximum per person and $50,000 maximum for the entire accident for bodily injury damages to include items such as: transportation to the hospital, medical bills, rehabilitation costs, loss of income, and numerous other costs associated with the bodily injury of the victim.
Example: The other vehicle has 2 passengers. Passenger 1 has $35,000 of medical bills associated with the accident, and Passenger 2 has $10,000 of medical bills associated with the accident. Assuming you had the Arizona state minimum liability limits, your insurance company would pay $25,000 of Passenger 1’s medical costs and $10,000 of Passenger 2’s medical costs leaving a remaining $10,000 of Passenger 1’s bodily injury liability you are responsible to pay.
The $15,000 represents the limit of property damage liability the insurance company will pay out to the other parties involved in the accident.
Example: The cost to repair (or replace via “totaling”) the vehicle damaged as a result of the accident above is $16,000. Your insurance will pay $15,000. Again, leaving you short, and responsible to pay an additional $1,000 to the other party involved in the accident.
As a result of the accident in the example above, you are liable (responsible to pay) for an additional $11,000 out of pocket. Each state has laws, if taken to court, the other party can use to legally remedy the shortfall. Often times, these result in a judgment lien of some sort to extract the shortfall from you if you do not have the $11,000 immediately on hand. This lien could result in a wage garnishment (up to 25% of gross income in Arizona).
But you had full coverage didn’t you? Or did you?
Insurance serves two purposes: transfer of risk, and to make you whole again after an accident. It is not intended to make you rich, or improve your position. It is intended to transfer the cost (risk) of a very big claim from you to the insurance company for a considerably smaller monthly premium (smaller than the cost of the claim). Full coverage insurance is more than whether or not there is Comprehensive and Collision coverage on the policy. Having the right amount of liability insurance coverage is very important, relatively inexpensive, and sadly many consumers do not have enough to cover the cost of an accident and protect the things they have worked so hard to acquire. When you are considering how much liability insurance to purchase, considering asking yourself one question: “How much of the claim am I willing to pay if I have a really bad accident?”
When shopping for auto insurance, of course you will need to consider the cost of the premium. However, when setting the liability limits, you should also consider what assets you may have: savings, 401k, IRA, or wages. Each consumer’s “risk threshold” is as unique as the individual and is dependent on their financial situation. Hopefully you will avoid the old adage of: “counting pennies and throwing away dollars.”
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