I saw just saw a commercial on TV for The General Insurance that makes me shake my head. The commercial talks about how you can save money by not buying too much insurance. I shake my head at peoples ignorance, I did insurance sales for a while, and people are truly ignorant when it comes to insurance.
Many states require at least minimum coverage and guess what; many ignorant people buy minimum coverage only because they are required to. Let’s look at what insurance is and what it covers.
Let’s say your state required 15/30/10 coverage and that is what you have because that is all you’re required to have. What do these numbers mean?
The first number, the 15, means that if you have an accident and are found at fault, you caused the accident, your insurance company will pay any person injured in the accident up to $15,000 to cover their medical bills, pain and suffering.
The second number, the 30, means that if you have an accident and are found at fault, you caused the accident, your insurance company will pay a total of $30,000 to all persons injured in the accident up to $30,000 to cover their medical bills, pain and suffering. If you injure two people and their medical, pain and suffering are less than $15,000 each and you’re covered! Hurt 30 people and each of their injuries, pain, and suffering are less than $1,000 each and you’re covered!
The third number, the 10, means that if you have an accident and are found at fault, you caused the accident, your insurance company will pay up to $10,000 to cover property damage to vehicles, road signs, buildings, anything that’s not people.
Quick recap, 15/30/10 covers any individual you hurt up to $15k, all people combined up to $30k and property up to $10k.
So let’s say you cause an accident, you’re driving down the road and you get a text message, you grab your phone and as you’re reading, a pedestrian starts across the street, assuming you’re paying attention, and you hit them, doing $100,000 in injuries! You’re not an idiot so stay rather than running from the scene. The Police ask for your insurance and whip out your card. The day comes when the injured person is finally better and it’s time to pay the medical bills. How much were their bills?
Their bills came up to $100,000; you have 15/30/10 coverage. Your insurance writes them a check for $15,000, but where does the rest come from? If you said insurance, you are completely incorrect; you pay the remaining $85,000 in medical bills! By the way, if their bills are $100,000, you will also be expected to reimburse them for any wages lost as they healed. Let’s say they were out of work for 6 months and made $50,000 a year, so lost about $25,000 in wages. Suddenly the $85,000 turns into $110,000. Ah, but we also forgot pain and suffering. In many cases pain and suffering will be paid at the same rate as the cost of their medical care, so tack another $100,000 and suddenly, after your insurance has paid everything they must, you are handed a bill for…$210,000 and yes, you get to pay it all!
Don’t happen to have $210,000 sitting around? Maybe you own a house. If so, they’ll put a lien on it. Own a car, have a job, a bank account. They can take your car, garnish your wages, and empty your bank account in an effort to collect the $210,000 you rightfully owe.
In our scenario we’d hit a pedestrian, there were no vehicles or structures damaged, we got off easy. Let’s say that instead of hitting the pedestrian, we hit someone in a brand new $30,000 vehicle and did another $5,000 in damage to a wall, telephone pole, and road signs.
We have $10,000 in property damage coverage so the insurance cuts a check for that much to pay for the car, but you still owe the remaining $20,000 on the car and $5,000 for the other damage. Now we owe $235,000 that wasn’t covered by our insurance.
Granted most people will have minor fender benders, but these and worse accidents do happen. Don’t believe me; just watch the commercials lawyers have on TV. They should scare the heck out of anyone with minimum coverage!
No person that owns a home should have minimum coverage, no person period should have minimum coverage in my opinion because the correct amount of coverage usually isn’t that much more! For the non-homeowner, a policy with 50/100/50 might be more appropriate. Ask what it would run because usually the more coverage you have, the less it costs per dollar of coverage. That extra $35,000 per person might only run you $10-15 more a month. Would it be easier to pay an extra $15 a month than the extra $235,000 in our scenario? Ask your agent what they recommend, you may be able to get even more, say 100/300/100 for almost the same per month.
Homeowners have the most to lose. At an absolute minimum you need 100/300/100 coverage, but I’d recommend something more like 250/500/100 coverage. Take our accident scenario we described above and let’s see what you’d have to pay. The $100k in medical bills, $25,000 in lost wages and $100,000 for pain and suffering ($225,000 total) are all completely covered because you have $250,000 per person coverage. Even if they had a passenger with equal damages, you would still be completely covered because you have $500,000 per accident. The $30,000 for the car and $5,000 for other property damage are all covered by your $100,000 per accident property coverage.
Let’s see, pay for the actual coverage we need versus spending the rest of your life paying off your accident…get to keep our house…seems like a no brainer to me!
Now let’s say the vehicle we hit was high dollar, or we caused a multi car accident and someone’s building burned to the ground. We are obviously going to run through our $100,000 quick. To cover this risk we can add on an umbrella policy for say, $1,000,000. These are usually sold in million dollar increments and not hard to get for up to $5,000,000. It’s really q question of how much you have to lose and what you are willing to pay to protect it. Insurance companies typically require you to have some minimum level of insurance before they’ll sell you an umbrella policy, say 100/300/100, but now once you’ve exceeded the limits in an accident, there is an additional pool of money to keep paying.
Uninsured and Underinsured Motorist Coverage are places that people don’t recognize the importance of. Fine, you’ve bought a 250/500/100 policy to protect your assets, but what if you are hit by someone with state minimum coverage. Maybe we reverse our above scenario and you are the one who was hit, you have $100,000 in medical bills, a new trashed car you owe $30,000 on and are out of work for 6 months. Well the person with minimum coverage, his insurance will cut you a check for $25,000, fifteen for your injuries, and another ten for your car, now what?
If you had underinsured motorist coverage with the same 250/500/100 limits, your insurance covers everything, and then they get to go after the person with minimum coverage instead of you! Sounds good, huh? What if he had no insurance, adding uninsured motorist with the same 250/500/100 coverage will give you the same protection.
Buying insurance is really buying protection for the other person, buying uninsured and underinsured coverage is protection to take care of you. Of course, if you were seriously injured, your umbrella policy would protect you up to its limits.
You would be shocked to see how much protection you can buy for just a little more each month. Would you pay an extra $50 a month for this, that’s probably about what it would run. Anyone paying $150 a month for cable TV and another $100 for an iPhone can afford the proper level of protection.
I’ll share one story and we’ll wrap this up. It’s why I left insurance. I met a husband and wife, homeowners, he had some life insurance through work, and she had none. I worked up several options for them and resented them. Option 1 duplicated all their current and inadequate coverage (15/30/10) and would save them $700 a year. Option 2 offered them better homeowners’ protection, car insurance at 250/500/100 with both uninsured and underinsured motorist protection, and included a million dollar umbrella policy all for about $200 a year less than they currently paid. Option 3 covered everything in option 2 and covered the gap between the amount of life insurance he had versus what his wife would need him to have AND included a policy on her so he could afford to pay off the house and get daycare in case anything happened to her, all for about $20 more per month.
The light bulb turned on in his head as I’d explained what all those numbers meant, he got it. She on the other hand, all she kept repeating was, “But I’m paying more each month for the cars.” If they went with option 2 and passed on the life insurance they needed, I’d still save them almost $20 a month over what they currently had and give them something like 15x as much protection, and all she could focus on was, “$20 a month more for the cars.” He said that she paid the bills so had the final decision. I wasted another week and several more calls attempting to help her see the truth.
I decided that for the most part, people were idiots and pretty much gave up on the highly competitive insurance business. I could educate people and compete on price, put in every multi policy discount available stacking the deck in their favor, sit across from them and be completely open and honest with them, but I could never overcome blind ignorance.