How Much Insurance Should I Buy? What Kind?
by John Mesirow
Over the years, I have offered this advice this for hundreds of clients, so why not offer it to you? Have you reviewed your auto insurance coverages lately? Ever? If you know your coverages and have read your policy, stop reading this immediately and go out and have some fun! Seriously though, this would not be high on my list either if I didn’t deal with it on a daily basis. All too often, clients who come in have insufficient coverage. This can be disastrous if the other driver either has insufficient coverage, or none at all! You should protect yourself and your family by having sufficient coverage, which is usually much more affordable than you might think.
Can you answer these questions?
– What is PIP/MedPay? Should I have it? How much should I have? What does it cover?
– What is the difference between “collision”, “liability” and “comprehensive” coverage? Which of these coverages, and how much of each, should I have? What is 25/50?
– What is UM/UIM coverage? How much should I have?
If you can answer them, take the advice offered above, and stop reading! Go for a bicycle ride, or take a walk. As for the rest of you, don’t worry, I have a few answers …
PIP (Personal Injury Protection) and MedPay (Medical Expense Coverage) are first party coverages, meaning that they are under your insurance policy. (Some states have PIP, some have MedPay, and some have both.) PIP and MedPay pay your medical bills – even if you have health insurance – up to the limits of your PIP/MedPay coverage. (PIP also covers a percentage of your lost wages.) This claim is separate from your liability claim against the at-fault party. In fact, it is paid even if you are at fault. (Don’t worry, if the accident is not your fault, using these benefits will not increase your premiums. I once had to spend weeks convincing a client to accept an $8,000 check from her insurance company!) PIP/MedPay is extremely good, inexpensive coverage. Due to space constraints, I can’t explain this in greater detail here, but see Tom’s post about PIP for further details. Whatever you do, don’t waive it, and get as much as your insurance company offers. It’s very cheap coverage. Ask your agent about it.
As for the types of coverages, Collision covers your car if you are in an accident with another car (or some other object). Unless you’re driving an older car, you’ll want to have this coverage in an amount sufficient to replace your car. Liability covers you for injuries and damages that you cause. Get as much as you can afford not only to protect yourself when you are at fault, but because these limits are generally the same as the Uninsured (UM) and Underinsured (UIM) limits. These latter limits are extremely important if you are in an accident with an uninsured motorist (there are more than you might think) or with an underinsured motorist (someone who does not have enough insurance to fairly compensate you for injuries and damages they caused you to suffer). If your limits are the same as the person who hit you, that’s often all you can recover, regardless of the severity of your injuries. So protect yourself! Comprehensive just covers damage to your car not caused by a collision with a vehicle or an object (e.g., damage caused by a fire, weather, or a deer). As with Collision coverage, get what you need to cover your car.
What is 25/50? That’s the maximum your insurance company is obligated to pay if you are in an accident – $25,000 per person, with a maximum of $50,000 per occurrence. For example, if you and a passenger are in a collision caused by someone who also has 25/50, the most that driver’s insurance company will have to pay out is $25,000 for each of you, no matter how seriously you are injured. This is why having good UM/UIM limits is so important.
You now know what UM/UIM coverages are. How much should you have? A ton! As much as you can afford! In the above example, assume you have $75,000 in medical bills, and $10,000 in lost wages. If your UIM is as bad as the at-fault driver ($25,000), you’re not going to get any more than that driver’s $25,000, leaving you dramatically undercompensated for your medical bills and wage losses, and of course your pain and suffering (which was probably substantial if your medical bills were $75,000). If you had $100,000 in UIM, at least you would be able to obtain another $75,000 from your insurance company. However, even with $100,000 of UIM, you would still not be fully compensated. If you had $500,000 or $1million, there’s a decent chance you would be fully compensated. Buy as much coverage as you can afford. Again, unless your driving record is bad, you’ll be surprised how affordable higher limits are.
The above only touches on the available coverages and how much of each you should purchase. That’s why it’s critical to either have a good agent to explain everything to you, or to do your homework before you buy auto insurance. More than 90% of my clients have never had their coverages explained to them, until I do it! Please folks, get enough insurance to protect yourselves.