Buying car insurance can be frustrating. How much coverage?
What type of coverage? Why can’t I just call Geico since they promise to save
me money?
I’ll address the basics you need to know about buying car
insurance. Since there are different types of car insurance coverage, different posts will address different types of coverage within a policy that you buy.
I will even discuss in a later post which insurance
companies to buy and which ones to avoid. How can I be qualified to give such
advice? I deal with them on a daily basis. I negotiate settlements with them. I
know which ones suck to deal with. If you’re like me, you’d rather not deal
with an insurance company that sucks.
The first area of car insurance is your liability coverage.
This is your “holy crap I just caused an accident” coverage. But what does it
mean? In short, it’s the most your insurance company will pay to someone who is
injured or God-forbid killed because of an accident you caused.
In Tennessee, the minimum coverage required is $25,000 per
person or $50,000 per accident. What’s the difference? If there are two or more
people injured in an accident that you cause, they will have to fight over how
that $50,000 is split up. If only one person is injured, they can only recover
up to $25,000.
Keep in mind 25/50 is the minimum. In Tennessee, there are
three higher levels of insurance coverage (the “/” indicates the “per person”
and “per accident” difference:
$50,000/100,000
$100,000/300,000
$250,000/500,000
Why should you buy higher levels of coverage? At my firm we
once had an accident where there were seven people in a vehicle. The driver was
an idiot and caused the vehicle to roll over several times. Everybody lived but
everybody except the driver was badly injured. The driver only had 25,000/50,000
coverage. Guess what? The six people who were hurt had $50,000 to share. The
total of all their medical bills was over $130,000. See where I’m going?
What happens if there are more bills than coverage? If the
person you hurt has hired a lawyer, the lawyer will conduct an asset search to
see if you own anything free and clear (aka “a paid for house, car, boat,
giraffe, etc). In short, you’ll get sued and the injured person’s lawyer will
have to get a judgment against you that exceeds your insurance coverage. If
they do, you become personally liable for that exceeding amount. The local
sheriff will come by your house to pick up your valuables. He’s immune to
tears, so crying won’t help. Your stuff will be sold at an auction and it may
be enough to satisfy the judgment or it may not be.
What if your sold stuff still is not enough to satisfy the judgment? You can get
your wages garnished and be in debt to someone for years because you didn’t buy
enough insurance coverage. Are you worried/concerned yet? Good.
How much coverage should I buy? I recommend at least
100k/300k coverage. Usually this is enough to cover most accidents. However, if
you own considerable assets (especially if you own your home free and clear of
a mortgage), you need to buy 250/500 coverage. And if you buy 250/500 coverage,
most insurance companies offer umbrella policies (starting at $500k up to $5
million) at a discounted rate to provide even more protection.
That’s the liability coverage discussion. Next I’ll address
perhaps the most important safety net you could ever provide for yourself and
your family: uninsured motorist coverage.
