There are three types of people who should read this blog post:
1. The small to medium size business owner who wears many hats (CEO, Janitor, CFO, Company Shrink, Manager, Tech Guy/Girl, Industry Expert, Company Cheerleader, HR Director, and Insurance Buyer). Recently, you started to wonder, “what could happen that would put you out of business?”
2. The Young Professional who just got booted off mom and dad’s auto insurance policy. You research everything on-line and prefer to buy that way but have started to worry that you really have no idea what you have vs. what you need when it comes to insurance.
3. The 30-50 something family man/woman who has an auto insurance policy folder but hasn’t seen it since they moved three and half years ago….. “but everything is fine – we have not had a ticket or accident in years”
The story… 30 days ago a friend told you he saved $250 on his auto insurance. So you called your insurance agent and told him that if he couldn’t save you $250 in insurance premium, then you would move your insurance to another agent. Instead of discussing this in more detail, the agent made some cuts (lowered liability limits, raised deductibles, eliminated collision coverage, and cut rental car and towing coverage) to your policy and cut costs. You and your agent never discussed the specifics of these cuts or the potential consequences. You both just focused on the bottom line premium …. you are now paying $20.83 less per month or about $1.74 less per day. However, you didn’t really save money – you just bought less insurance.
One month later you get into an accident. You rear-end the car in-front of you on your way to work. You were alone in your car but you hit a car driven by a pregnant lady who also had three kids in the back seat. You are at-fault.
What are some of the insurance implications?
Since you at-fault adn you live in Illinois, you are responsible for the bodily injury to the woman, her baby, and the kids as well as physical damage to the woman’s property (her car).
When it comes to liability, how much is enough? You recently decided to lower your liability limits from 250/500/100 to 50/100/100. What does that mean?
- You went from $250,000 per person for bodily injury damage to $50,000 and from $500,000 per occurence for bodily injury coverage to $100,000.
- You stayed even on the physical damage at $100,000.
Well, the good news is that the damage done to the injured parties’ $40,000 car is completely covered. Zero dollars will come out of your pocket. The other piece of good news is that one of the kids in the back had no bodily injury.
The BAD NEWS:
- Two of the kids are hurt. Kid I has minor cuts and required $2,000 in medical attention. Although the $2,000 is completely covered by your insurance, the other kid needed $60,000 in medical attention and only $50,000 of it is covered.
BASED ON YOUR NEW INSURANCE POLICY: You saved $250 on your insurance premium but it cost you $10,000. Remember, you now only have $50,000 per person (used to be $250,000) for bodily injury coverage in an at-fault accident.
- The pregnant woman is also hurt. Although she (and her baby) wind-up being ok, the woman requires $150,000 in medical attention. Why so much $$$? It turned-out she needed to be rushed to the hospital, stayed there for three weeks, endured numerous tests, had a small surgical procedure, and required a great deal of physical therapy.
BASED ON YOUR NEW INSURANCE POLICY: you saved $250 on your insurance premium but it cost you $100,000 for the injured woman since you only carry $50,000 per person for bodily injury in an at-fault accident.
THE INSURANCE COMPANY OWES: $102,000 ($2,000 – Kid I, $50,000 – Kid II, and $50,000 – Woman)
YOU OWE: $110,000 out-of-pocket ($10,000 – Kid II + $100,000 – Woman). Since your insurance will not cover this portion, you will have to tap into your personal assets. If this happened to a business owner and the accident involved one of his/her business autos, then he would have to dip into company assets.
THREE TAKEAWAYS FROM THIS STORY:
1. Some people buy insurance from the following perspective: I am never going to need this stuff. Other people buy insurance from a different perspective: I might need this stuff. There is a big difference!
2. Don’t turn down a ton of insurance to save a couple of bucks! If there is a loss, then either you or the insurance company is going to pay. If you can’t afford to pay it yourself, then you should buy insurance to cover it.
3. It is important to know both what is covered and what is NOT covered when it comes to your insurance policy. It is equally important to know your insurance limits and deductibles.
ONE FINAL POINT:
It is important to note that we have only focused on one piece of this claim: the driver’s liability that arose out of having an at-fault accident. Future blog posts will cover other aspects of this claim: Damage to the insured’s driver’s car, deductibles for comp and collision coverage, rental car coverage, towing, umbrella policy, etc.
Questions? Call me at (815) 979-9121.
Relationship-focused insurance agent dedicated to protecting your business and family.
Disclaimer: This article is for informational purposes only. There is no legal advice being suggested or offered. The author assumes no responsibility or liability for the actions take or not taken by the readers based upon the above-mention information.
Agency: Williams-Manny, Inc. – located in Rockford, Illinois.
I blog about three things: insurance, how I use social media to better serve my insurance clients and build my business, and business development ideas I have learned along the way.