How Much Car Insurance Coverage is Enough?

In December of 2016, we wrote about the various types of car insurance.  Today, we are focusing on why it’s important to make sure you have enough insurance.

The amount of your policy limits under your liability insurance is the maximum amount of money your insurance company will pay on your behalf if someone files a claim against you for personal injury.  This can be a claim that never goes to suit or it can be a lawsuit that has been filed.

Maryland requires you to carry liability insurance of at least $30,000.00 per person and $60,000.00 per incident ($30,000/$60,000).  Your options for liability insurance can range from the minimum, up to $250,000/500,000.  These limits can vary depending on the insurance carrier.  The per person limits are the most that any single person can recover from the accident and the per incident amount is the most your policy will pay out in total.  So, if an accident injures 4 people and you have policy limits of $250,000/$500,000, the total amount of money that can be paid out is $500,000.00, but no matter how serious any single person’s injuries are, they cannot recover more than $250,000.00 from your policy.

So, how much is enough?  Even relatively minor accidents where the injured party only receives conservative treatment can involve thousands of dollars in medical bills. The law allows an injured party to recover all of their economic damages, (usually medical bills and lost wages).  Additionally, they can recover non-economic damages too (pain and suffering).  A policy with limits of $30,000/$60,000 can be exhausted very quickly.

What happens if you find out after a claim has been filed against you, that you don’t have enough insurance?  You will not be able to purchase a policy that will retroactively apply.  Assume you have a policy with limits of $30,000/$60,000, the case goes to trial and a verdict is returned in favor of the injured party for $50,000.00.  How is the extra $20,000.00 paid?  There are a couple of possibilities.  If the injured party has enough underinsured motorist coverage, their policy will pay it.  However, their insurance company has the right to sue you to recover any money they pay to their insured.  Another possibility is that the injured party can enforce the excess verdict against you personally.  They can garnish your wages, attach a lien on your property and utilize any number of procedural tools to enforce the judgment.  This may also force you into filing for bankruptcy.

Your policy limits can also impact the amount of coverage available to you and your family if you are injured by someone who is uninsured or underinsured.  We’ll discuss this in more detail in our next blog post.

In addition to increasing your policy limits, it may also be worthwhile to purchase an umbrella policy as well.  This is a policy that kicks in additional coverage when your primary coverage is exhausted.  Call your insurance company or agent to discuss what policy limits are appropriate for you.

 

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How to Ensure You Have the Right Insurance Coverage on Your Car

car-auto-insurance

We’ve all seen the commercials.  Allstate has Mayhem, State Farm has Jake, GEICO has the gecko, and the list goes on.  We all pay for car insurance because the law requires that we do.  We all know our car insurance can go up if we get a speeding ticket or are at fault for an accident.  But, do you know what the various types of coverage mean?

Liability Insurance – The State of Maryland requires that all passenger vehicles carry liability insurance.  Maryland has minimum coverage amounts that each vehicle must carry.  What does liability insurance cover?

Liability insurance covers damage you cause with your vehicle to another person.  This includes property damage and bodily injury.  Property damage is pretty self-explanatory.  If you hit another car with your car, this part of your coverage covers the cost to repair the damaged vehicle, up to your policy limits.  So, if you rear end a Honda Accord, you’re probably fully covered.  If you rear end a vintage Ferrari, your limits may not be adequate.

Bodily injury covers payment of medical bills, lost wages, pain and suffering, and a host of other potential areas related to injuries sustained by a person in a car accident, up to your policy limits.

Another area of coverage that ties into liability insurance is your uninsured/underinsured motorist coverage.

Collision Insurance – If your car is damaged or destroyed in an accident, collision insurance coverage will typically pay to fix or replace it, up to certain limits (e.g., the value of your vehicle).  This coverage generally comes into play if you’re at fault for an accident and damage your own vehicle.  If you have a lien on your vehicle, you’re usually required to have collision coverage.  However, if you don’t have a lien on your vehicle, Maryland does allow you to opt of this coverage.

Collision coverage comes with a deductible. This means you have to pay a certain amount of the damage out of your pocket.  Any amount after that is typically covered up to the actual cash value of your car.  For example, if you have a $250.00 deductible, and the cost to repair your vehicle is $1,000.00, you will pay the first $250.00 and your insurance company will pay the remaining $750.00.  Generally, the higher your deductible, the lower your premium.    When making the decision to carry collision coverage, you should evaluate how much your car is worth.  If your car is worth a couple of thousand dollars, maybe it’s worth the gamble of not carrying it.  If your car is worth several thousand dollars, you may want to think about carrying collision coverage.

Comprehensive Insurance – This coverage pays for damage to your car caused by an event other than a collision, such as fire, theft, vandalism, if you hit an animal, or if you sustain flood damage.  Like collision, if there is a lien on the vehicle, you likely have to have this coverage.  The decision to carry this coverage, similar to collision, should be based on the value of your vehicle.

Your insurance agent can discuss these types of coverage with you in more detail and help you make a decision regarding the right types of coverage for you.

Having the right amount of coverage is very important if you’re involved in a car accident and you’re at fault.  It can mean the difference in seeing your insurance rates go up a little bit or having to liquidate assets in order to pay a settlement or judgment.  We’ll discuss policy limits and uninsured/underinsured motorist coverage in more detail in our next blog entry.