Personal Auto Insurance is one of the least understood products you will buy. One giant retailer suggests you could spend 15 minutes and make the right choices … Why rush? Do you compare restaurants on the basis of how easy it is to read the menu or how the food satisfies you?
I’m not suggesting a college level course to make a wise purchase, but a few helpful hints can make you a more educated buyer and then regardless of the time spent making the purchase, you will get the product right for you and your family.
Let’s start with those numbers: For Example BI/PD 100/300/100… what does it mean? Split limit policies have specific sublimits. For decades most auto insurance in the US has been sold in these rather archaic standards. There is a good reason that favors the insurer not you, but let’s look at what those numbers mean. BI, Bodily Injury means the damage you do to someone else’s body. It could include severe physical injuries, mental injuries and even subsequent lost income from those injuries. That first number is critical. Bodily injury is usually is often sold in per person and per accident (the first two numbers) limits. The reason that first number is so important to an insurer is that it represents the most they might expect to pay in the typical accident. About 75 % of the time an accident will involve one driver in each car. Take a look around at the next traffic light. How many vehicles around you have more than one occupant? As a nation we go it alone often. What insurers are betting is that if you injure another person there will only be one person and the first number represents their maximum exposure to loss. That second number limits all injury payment in an accident and the third number limits property damage payments (not limited to, but including the guy’s car you hit).So, there are three sub limits to the traditional Split Limit policy.
All companies are not created equally, but for about 10% more in your cost, you can skip some sub limits on your policy and better protect yourself. Many companies sell what is called Combined Single Limits, CSL Coverage. Most would prefer to sell you the old standard, but you would be wise to seek out an agent or company that will give you a Combined Single Limit Quote. CSL provides one lump sum to work with and to cover all the liabilities of bodily injury and property damage as the accident happens, not as the sublimits apply. Make sure you have enough in that one lump sum. For example in an accident with 300,000 bodily injury and 100,000 in property damages, you would need a comparable lump sum of 400,000. Since that is a limit many insurers do not offer, the next logical sum is 500,000. So, this better protection might cost you some, yet better protection is what you are really looking for. Buy for your own protection not your insurers.
Uninsured Motorist, UM Coverage, usually follows the form and limits of the Liability Coverage. If you buy CSL, you buy CSL UM. Now you are protecting your family from someone who does not have insurance (about 14 % of all accidents) and in some states, someone who does not have enough insurance. Be sure to buy comparable limits to your Bodily Injury coverage.
There is one other critical reason an insurer might want to sell you lower limits of coverage. And it is hardly obvious. The insurer or agent who pushes you toward lower limits may be doing more than watching out for your wallet. One of the under emphasized coverages in the basic auto policy is the cost to defend you from law suits brought against you by the injured or by those whose property you damaged. Defense costs can and often do exceed the individual sublimits of policies. What is the insurer or their agent really trying to do? They are limiting the exposure in another important way. The requirement to defend you typically ends when the limits of coverage are offered. Have you ever wondered why some companies seem to thrive on low limit sales? Let’s suppose you get talked into buying less coverage than you had down to a limit of 25,000/50,000 Bodily Injury. Now at the time of loss the insurer makes a quick assessment of the situation and sees that the injuries are severe but only to one person. And that 25,000, would be exhausted quickly. What action does it take? It renders the limits of 25,000 to the injured party and walks away from further defending you. What was rendered is what you paid for. You might still be liable to further damages and further legal action against you. Trust me; your insurer is not too worried about that. You may have a garnishment of your wages for the next twenty years, but they did what they said they would do. For them, case closed …move on.
So let’s review:
1. Be savvy and ask for quotes in both Split limits and Combined Single Limits of Liability coverage.
2. Buy enough. Protect yourself as well as your family. Most companies will not sell you Uninsured Motorist Coverage or Underinsured Motorist Cover in limits exceeding your Bodily Injury Liability limits. So, be prudent. Buy the same limit for both Liability and Uninsured Motorist and make that number as large a number as you can afford.
3. Watch out for the suggestion you have too much coverage. That rarely is true and can give you a false sense of confidence that you are very well protected. Remember Bodily Injury involves medical costs and we all know how those have escalated in the US in the past few decades.
©Copy right Jack Heller, CPCU 2012. All rights reserved.
Jack Heller, CPCU is an Entrepreneur and knowledgeable in Personal Insurance with over 30 years in Insurance Company and Agency Management. Formerly he was President and CEO of Sothern Heritage Insurance Company and principal founder of two other insurers. He is President and CEO of Insurance Browser Inc. an on line insurance agency with offices in Atlanta GA and Austin TX, doing business in AZ, CA, GA, TX .and MO See www.insurancebrowser.com