When most of us purchase insurance, the first thing we look at is the price of the premiums. Flip on the TV and within an hour, you’re sure to see a commercial for an insurance company promising to save you money on your monthly premiums. Of course we all want to save money, but there’s danger in being underinsured. Low premiums may very well mean that when the worst happens, your policy doesn’t cover much and you’re stuck paying costs out of pocket.
When it comes to auto insurance, your state likely has a minimum amount of liability insurance that you must hold to drive legally. Is that minimum coverage enough? Usually not. Often, the legal minimum protects others, but not you and the passengers in your vehicle. That means if you cause an accident, your insurance will pay the other party up to your policy’s maximum, but it’s likely that you won’t receive anything to fix your own car. And if you injure the other driver or smash into a building, you could be personally on the hook for medical bills and damages.
Reviewing your policy after a major life event
It’s time well spent to review your auto and homeowners’ insurance policies to understand your coverage, but we strongly suggest doing so after a significant life event such as having children or getting married. Expanding your family can create gaps in your insurance that could cost you tens of thousands of dollars because you’re unprotected (or underprotected). There are other factors at play as well, including discounts you may receive when you get married, life insurance and disability income protection that you might need when you have children, protecting any new items you add to your home inventory (such as electronics or jewelry), and whether you often drive other children in your vehicle.
Here are a few things to consider as you review your insurance policies:
- Get enough homeowners’ insurance to cover the structure of your home, your personal possessions, the cost of additional living expenses if your home is damaged and you have to move during repairs, and your liability to others. According to the Insurance Information Institute (III), this is the minimum amount of homeowners’ insurance you should get. They suggest getting a ballpark estimate by multiplying the total square footage of your home by local building costs per square foot. Do a quick inventory of everything you own in your home to get an estimate of replacement cost. As for liability coverage, they suggest purchasing at least $300,000 to $500,000 worth of coverage of liability protection.
- Understand required vs. optional coverage. This helpful III infographic explains what kind of auto coverage is mandatory in most states (liability, bodily injury liability, and property damage liability) and what is optional (personal injury protection, collision, comprehensive, under/uninsured motorists, and rental car reimbursement).
- Up your Personal Injury Protection coverage (auto insurance). If you live in a no-fault state, personal injury protection (PIP) might be required, but you could still add this as additional optional coverage. Should you? We think so. If you get into an automobile accident, your PIP will pay to cover medical costs, while your health insurance will cover any excess—even if the accident was your fault (which is different than liability coverage). PIP can help you pay for expenses that are related to the accident, like hospital bills, prescriptions, in-home services and rehabilitation, funeral expenses, and lost wages due to injury. One tip: you might have the option of setting your health insurance as your primary form of injury coverage after an accident. This would mean that your health insurance benefits will pay your medical costs. Choosing this arrangement would cut your auto insurance premiums, but it does put you at risk that your health insurance company might insert a lien on any money you recover from your PIP coverage.
- Exceed the minimum. The DMV website has helpful information about car insurance requirements in each state. Basic and standard policies differ in what they will cover, and it is important to consider the worst-case scenario when choosing your policy. For example, in New Jersey, a basic policy does not include bodily injury liability, whereas a standard policy could offer between $15,000 and $250,000 per person ($30,000-$500,000 per accident). Think carefully about how expensive accidents can be and whether your insurance would actually help you should you get involved in something serious with lots of car damage and injuries.
- Consider an umbrella policy. If you own property or have investments and savings worth more than the liability limits in your homeowners’ policy, it’s worth considering purchasing an excess liability or umbrella policy. This offers broad coverage for things like slander and invasion of privacy, which are not covered under standard homeowners’ or auto policies.
- Know your rights to sue. When you purchase auto insurance, you might have the option to choose whether you want a limited or unlimited right to sue, which will impact your premium’s price. If you choose the limited option, you will usually still be able to sue for pain and suffering damages for certain types of catastrophic injuries. This does not mean you forfeit any right to compensation for medical expenses. Some policies/states refer to this as limited or full tort policies.
We understand trying to live within a budget and insurance is an expense most of us would love to avoid paying. Insurance carriers know this and entice customers with lower premiums…but it’s important to be informed. A lower premium could mean your insurance doesn’t come through for you when you really need it. Talk with your insurance agent to review your policies, understand where you might be at risk, and raise certain coverage if needed. If we can answer any questions based on our experience with plaintiffs involved in accidents and lawsuits, give us a call.