Auto Insurance… Why it’s so important!
“An investment in knowledge pays the best interest” – Benjamin Franklin
What if I told you there is a lot more to auto insurance than simply full coverage vs. basic? Like, a lot more. What if there were differences even within the same type of coverage? Have you heard of ACV (Actual Cash Value)? How about Stated value? How about Guaranteed/Agreed value?
If I peaked your interest then this article is for you! We will dive deeper into auto insurance to discuss what it is, and what types of coverages exist so you can be empowered to explore these options with us for the right coverages that fit you best.
Why is Auto Insurance important?
This is a great place to start with so we can all collectively understand the value in this product both from the insured person, and the injured person’s, perspective. For starters, auto insurance can protect you in many ways, with the first items usually being liability protection which helps protect you in the event you harm somebody else. Liability generally encompasses bodily injury and property damage. You can either have them split into two separate categories, or some companies allow you to purchase Combined Single Limit (CSL) which means there generally isn’t a differentiation between how much the policy pays towards bodily injury vs property damage. This is generally considered a better quality form of coverage because of this. Here are a few scenarios to consider, for example, and we will dive deeper into these:
Scenario 1: You hit two other vehicles, injuring both drivers. You have $100,000/person and up to $300,000 per accident for liability, and $100,000/accident for property damage
-In this scenario you should consider that for each driver’s physical injuries, they may also experience lost wages, and have pain and suffering included as part of their claim. Also, if they have lasting injuries, claims can be reopened in the future to provide additional payouts. This is helpful for you to remember if you are ever injured too! Additionally and separately, the damage to each vehicle will be considered as part of property damage, including other related damaged property such a light posts, fencing, guard rails, and anything else that is damaged as part of the accident.
Scenario 1 costs:
Person A bodily injury claim: $80,000
Person B bodily injury claim: $120,000
Person A property damage claim: $15,000
Person B property damage claim: $25,000
Person C property damage claim: $5,000 (fencing)
Total covered claim value (not including deductibles and other applicable costs which can include any soft costs from your end such as lost wages): $225,000
Out-of-pocket expense for you in addition: $20,000
Wait, why do I have an out of pocket exposure? Because Person B’s injuries EXCEEDED your liability limit of $100,000/person by the additional $20,000.
How can they collect? They can pursue you in court for the damages, seeking garnishment of wage, and/or liquidation of assets. Things can certainly get complicated in court and while there can be a variety of outcomes we can safely agree this a very unfortunate scenario that could have been avoided either by carrying higher limits of coverage, Combined Single Limit, and/or carrying an Umbrella policy.
Scenario 2: Same as scenario 1 but this time you are carrying $300,000 in CSL coverage.
Scenario 2 out-of-pocket exposure: $0
Because you carried $300,000 in CSL and the total value of the claim was only $225,000 you have no other out-of-pocket costs aside from any applicable deductibles or other applicable costs.
Scenario 3: You are carrying $300,000 CSL and hit another vehicle, causing $25,000 in injury to the driver, and $450,000 in property damage.
What?! How can you cause THAT much in property damage?! In this scenario the other vehicle was a Ferrari 812 Competizione and unfortunately you decided to look down at your phone and swerved into them as they were passing you. Your insurance pays out up to the liability limit leaving you with $175,000 in personal cost exposure. If you had an umbrella/excess policy you likely would have been covered though.