Monday, February 17, 2014

Pro Bono: Liability Car Insurance Coverage

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.  

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