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How Liability Coverage Works
When you understand the personal risks involved by carrying lower liability
limits, you soon realize that the small additional cost to increase property
damage
liability is worth doing. I have seen numerous cases over the years where
the "at
fault" party was paying back a property damage claim to the insurance
company on
a monthly basis until the entire amount was repaid! This is the result
of carrying
inadequate property damage liability coverage. It is my personal belief
that $100,000
property damage liability should be the minimum amount of coverage carried.
Did you know that you could be held responsible for an accident, never
having touched another vehicle? An example of this is when you cause another
motorist to hit a vehicle or object or even leave the road altogether,
to avoid being hit
by you. This could result not only in a property damage liability claim
but also in a
bodily injury liability claim as discussed earlier.
Do you realize the potential cost of a
utility pole? We are talking about more
than just the cost to replace the pole. You could also be responsible
to the utility
company for lost revenue because of the power outage to its customers.
The total
cost of hitting a utility pole could easily run into thousands of dollars.
What about the cost of hitting a building? If it's a commercial building
you not
only have the cost of repairing the building but also lost revenue to
the businesses
while repairs are being made plus other miscellaneous expenses. Even though
the
owner of the building may have insurance to cover the damage, their insurance
company will look to you for reimbursement. This is called subrogation.
Reimbursement to the insurance company can be made by writing a check,
utilizing your property damage liability coverage, or paying on a monthly
installment plan.
The insurance company could even garnish your wages if they chose to!
Now that we have an overview of how bodily injury liability and property
damage
liability coverages work, I would like you to ask yourself the question,
"What
coverages are right for me?"
Many people, when shopping for auto insurance,
are clueless as to what
coverages and limits they should have. Naturally, they are looking for
the lowest
price or the minimum coverages allowable by state law. They seldom do
a proper
evaluation as to what coverages and limits are right for them.
Let's look at bodily injury liability coverage and gain an understanding
of how
low the minimum limits are that the state requires. I realize these limits
may vary
from state to state, but a standard minimum coverage is $15,000 per person
and
$30,000 per accident for bodily injury liability. This means if you are
responsible for
the injury, death or disability of another person, $15,000 is the maximum
coverage
you have for one person and no more than $30,000 if two or more people
are injured
in the accident. In essence, if 2 or 20 people are injured in the accident,
you only
have a total of $30,000 coverage. It doesn't take a rocket scientist to
realize that
carrying low limits of bodily injury liability coverage is trouble looking
for a place to
happen!
Think of it this way. If you were the person
injured or disabled, or you lost a
member of your family, how much coverage would you want the person responsible
for the accident to have? This is a good starting point for you to consider
how
much bodily injury liability coverage is right for you.
Another way of looking at it is how do you feel about moral obligation
to your
fellow man? I would like to think that if I made an error in driving or
had a mechanical
failure of my vehicle that resulted in an accident, I would be able to
restore, at least
financially, what I took away from someone else. This in my opinion is
the most
important consideration.
Another important aspect to consider is
what do I have to protect. Over the
years many people have said to me, "I don't have anything to lose"
or "I have assets I need to protect." What the "nothing
to lose" group fails to realize is that while they
may not have money in the bank, property or other assets, they have an
ability to
produce income that could be attached if they lost a lawsuit. This fallacy
is common
among students and young people who may appear to have the least to lose
now, but
because of their age, have the most to lose in future earning power. Many
times
they mistakenly take that risk.
The "I have assets to protect" group often chooses the maximum
coverage
they can buy. This usually means $100,000 per person, $300,000 per accident
for
bodily injury liability, and $100,000 property damage liability. Many
times they also
opt for an excess or umbrella policy that gives an additional $1 million
to $5 million of
liability protection.
It is my opinion that $100,000 per person, $300,000 per accident bodily
injury liability and $100,000 property damage liability along with an
excess or umbrella policy for $1 million, should be strongly considered
for the reasons mentioned above.
There are other limits of coverage for bodily injury liability that
range between
$15,000 per person, $30,000 per accident, and the $100,000 per person,
$300,000
per accident. If you feel that somewhere in the middle is best for you,
you can
select from various coverage combinations. Some insurance companies offer
bodily
injury limits of $250,000 per person, $500,000 per accident. However,
you may be
able to buy a $1 million excess or umbrella policy for little more than
the difference in
premium and have a lot more protection for the money.
You need to evaluate your affordability level, your personal feelings
about
moral obligation, as well as protecting what is yours now and in the future,
It's your
decision!
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