Do you have enough coverage from your auto insurance?

Last week, I came across this question on biggerpockets. It was from 5 years ago, but it is definitely relevant to 2020 as well. Sarah was at fault in an auto accident, and the injured party sued her for a payout of $200K due to the level of injury which was well above the limit of $15K in her policy. Sarah worried that she might lose her recently bought home over this lawsuit. I am sorry for both Sarah and the injured party. This mess over liability would have been totally avoidable if Sarah had purchased her auto insurance with the right amount of coverage.

Do you think you’re adequately insured? If you are not, what happened to Sarah can also happen to you.

In this era of competitive pricing and online quotes, most people may not have an insurance agent to explain their policies to them. Well, to be honest, only good agents bother to explain to you what you’re buying. If you don’t have a good agent, or you do not put too much thought into your policy, you probably just do a quick search online and may opt for the cheapest quote online. But that may only provide the bare minimum coverage required by law. Is that enough? How much do you need in liability coverage?

For example, California requires drivers to carry at least $15,000 per person / $30,000 per accident for bodily injury in auto insurance coverage. In some states, such as New Hampshire, it is not even required by law to carry an auto insurance. However, is no or bare minimum coverage right for you?

For me, the most important coverage in auto insurance is the liability coverage. Property damage is always limited to the value of the property. If you are at fault and total a Tesla/BMW/Porsche, you’re only liable for a fixed amount, i.e. $80K. Yes, it is a lot of money, BUT that’s it. However, when it comes to bodily injury liability, i.e. the injury resulted from the accident, there is essentially no limit on how much you can be responsible for. 

You get a policy not only to fulfill the requirement of the law, but also to protect others and yourself. If you carry an insurance with just the minimum coverage required in the state of California, the policy pays up to $15K per person involved in the accident and up to $30K per accident. In other words, if the injuries from the accident makes someone not able to work for 6 months along with intense physical therapy or even surgery, do you think $15K is enough? Absolutely not! 

The Final Verdict

Please seriously consider purchase a policy that provides reasonable coverage to protect others and yourself. It is definitely in your best interest to protect your assets in case of an at-fault accident. If your policy only provides a bare minimum payout, the injured party can sue you to pay for the rest of the damage that you bring to someone’s life. A judgement from the court can seize your assets to pay for the medical bills and loss of income. You can lose all your savings and your home. In addition, your future earnings can also be at stake and garnished until the judgement is fulfilled. 

Besides, if you could just put yourself in someone’s shoes, you also want whoever at fault in the accident to at least pick up the medical bills and cover your lost income during your recovery time. In a way, it is a social responsibility to have adequate coverage in your policy to cover injuries in a major accident. We all know how crazy hospital and medical bills can be.

Even if you are still a student, without much in your bank account or without any substantial assert, it is still wise to pay a higher premium to have a reasonable personal liability coverage. For our families, we opt for the higher coverage of $250,000 per person, $500,000 per accident, and $100,000 property damage for the peace of mind, and on top of that, we also purchase an umbrella policy to cover the highly unexpected

After all, we pay for insurance policy but we hope we do not need to use it. Yet, when we do need to use it, we count on it to serve its purpose. Act now and make it yours 2020 resolution! Check your policy and make sure you are adequately covered and protected!

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