Wednesday, July 22, 2009

Auto Insurance Policy Limits - My Two Cents (Part 3)

OK, so in the past 2 entries, I've talked about the basic auto insurance coverages available, and my suggestions for those of modest means. Now, I'd like to discuss policy suggestions for those with more assets --- assets to lose!!

At the risk of sounding like a shill for insurance companies, my general rule of thumb is simply this -- you're much better having MORE coverage!!

I'm not suggesting you put yourself in the poor house over insurance premiums, but if you have assets to lose, and you don't have enough in the way of coverage limits, you might end up there anyway.

In my experience, insurance agents aren't the best guides for this. If you call and say "give me the minimum", that's what they'll do. If you ask, though, you will find that you can pump up those limits at a very reasonable price. Set aside some time to discuss premium pricing with your agent. It's worth it. You'd be surprised how little it costs to bump a $25k policy to $100k; or even $300k!! Ask - ask - ask!! Because every BI policy includes the insurer's cost of having to hire you an attorney, it is the first dollar of insurance coverage that is the most expensive. The insurance company has to pay for an attorney whether you have $25k in limits or $300k in limits. Ask, and then you can make an intelligent decision.

Frankly, $25k in insurance coverage isn't much these days. If you don't have much to lose (like those I was addressing in Part 2), no problem. But if you have six figures of equity in your home; or a couple of nice cars; or stocks and bonds; or a decent income (or incomes), you shouldn't be playing around with a $25k policy. You're inviting trouble.

In fact, while you're talking to your agent about the cost of higher limit BI coverage, ask about an umbrella policy, too. An umbrella policy is one that sits atop your BI coverage -- an extra layer of coverage. It's usually written at a minimum of $1 Million in extra coverage; and often more. And umbrella policies typically provide coverage for some acts not even covered by your basic BI policy. (And the same umbrella policy will usually also provide excess coverage for your homeowner's policy.)

I can't tell you how many times I've seen people sweating out lawsuits because they own way too much and yet are running around with measly coverage. Everyone figures "Not a problem. I'm a safe driver. It won't happen to me." Nonsense. That's why they call it an accident! Protect yourself!

In addition to BI limits, make sure your PD coverage is appropriate. If you are driving around in a $45,000 Suburban, make sure your limits will be enough if someone without insurance hits you and totals your car. How's your medical coverage? If its shaky, consider bumping up your PIP limits. And remember, there are a few 'add ons' you can stick on your policy. Most insurers offer separate rental and towing coverage. This is not for the situation where the other driver is at fault and is insured. Normally, their insurer will pick up your rental and towing bill. But if you are at fault, you'll need separate rental and towing coverage to pay for a replacement rental while your car is in the shop. Again, you'd be surprised how relatively inexpensive this coverage is.

So, simply, the bottom line is this. If you have assets to lose, protect them. Get yourself enough coverage so that you don't have to worry about losing your assets; and get yourself enough coverage so that you, yourself, are covered for damage to your car, medical bills, your own injuries (should the other driver not have coverage), and more.

Remember the old saying, "An ounce of prevention is worth a pound of cure."