What do the limits on my auto liability policy mean?

This is a question that should probably be asked more frequently.

Sadly, the “save 15% in 15 minutes or less” movement has created a problem that many people don’t realize exists.  While the person on the other end of an internet chat box or telephone line may seem like they have your best interests in mind, the truth is they don’t care.

They are going to get paid when you buy a policy, so they honestly have no incentive to advise you on the correct limits, putting their sale in jeopardy due to increased premium.  People tend to buy on price, so they are elated when they receive a quote that is hundreds of dollars less per year….until they need coverage.

In Florida, the matter is equally confused because of our PIP “no-fault” laws.  The average consumer thinks that if the state only requires us to carry 10/20/10 limits, then that is all we technically need.  That thought process couldn’t be further from the truth.  The last thing anyone wants is to have to pay money out of their pocket for virtually anything.  Imagine the dismay when an at-fault driver finds out that their limits are too low and they are now on the hook for $100,000 in cash.  There goes the vacation home, the college fund and quite frankly, I hope you like the taste of boxed mac and cheese (not Kraft) and ramen noodles, because that may be all you can afford to eat after an uninsured loss.

To help you understand liability limits, we must first define what those limits mean.  We will use the bare minimum 10/20/10 limits to explain. The first number is the amount of bodily injury coverage you have per person if you hit someone else and cause them harm.  For each person that is injured in the other vehicle, your policy would pay out $10,000.  Sounds like plenty of insurance, right?  Probably not.  The second number is the total amount of bodily injury coverage you have for all injured parties in the other vehicle.  In this example, you would have $20,000 of coverage.  All of a sudden, it’s seeming like less and less.  The third, and final, number in the example is for property damage.  In this case, you would have $10,000 to pay toward damaging the other party’s vehicle.  Seem like there’s enough there now?  Here’s a fun exercise.  The next time you are at a red light, look left and then right.  Count the number of vehicles that you can see that are worth $10,000 or less.  Those are the vehicles that would be covered.  Now, count the number of Mercedes, BMW and others that are worth way more than 10k.  Those are the vehicles that could cost you literally everything.

My wife drives a Mercedes SUV.  You can imagine that it is worth more than $10,000.  I also have 4 kids.  Imagine what would happen if you, the reader, t-boned my wife after running a red light.  Imagine that she has 2 of my 4 kids in her car on the way to soccer practice.  Imagine that her vehicle is totaled.  She has broken bones and both of my kids needed to receive emergency medical treatment.  How much coverage could you possibly need?  Would 10/20/10 be enough?  Not even remotely close.  Most people are under the impression that if they have any insurance at all they are protected.  That’s definitely not the case.  In that scenario, the insurance company would appear magically, write a check for $20,000 for the bodily injury you caused and $10,000 in property damage (the policy limits) then walk away.   You would be on the hook for the difference between what you chose to carry (10/20/10) and the amount of damage you actually did.

Let’s assume the car was worth $60,000.  You would owe us $50,000 for the totaled SUV.  Let’s also assume that one of my children had injuries of $27,000, one had injuries of $22,000 and my wife had injuries of $20,000.  The insurance company only pays 10k per person with a max of 20k per accident.  You would be on the hook for 17,000 + 12,000 + 20,000 for a whopping total of $49,000.  When you add the totals for bodily injury and property damage together, you would be liable for a grand total of $99,000.  All of a sudden 15% for 15 minutes or less isn’t quite the value you thought, is it?

Do not discount the value of professional advice.  This is your livelihood.  Speak with an agent that will take the time to educate you.  Take the time to review your coverage and make sure you understand exactly what you are buying.  Comparing the advice of an independent insurance agent to that of a call center employee is like comparing apples and Volvos.  It just doesn’t make sense.  If a telemarketer who sells magazine subscriptions called your home, would you ask them to come out to take a look at a plumbing problem?  Let’s hope not.

Good agents understand that they earn your trust and subsequently your business by giving you pragmatic, educated advice.  Good agents also understand that people who only want the minimum are probably not the best clients to bring into their agency.  Because of that, most good independent agencies have minimum bodily injury and property damage limits that they offer to quote.  They take the time to explain things to you, make sure you understand what you are purchasing and then assist you in placing that coverage with a reputable carrier while shopping for better rates each year at renewal.  If the difference between being insured and underinsured can cost you $99,000, how many years will have you have to purchase insurance saving 15% or more to make up that gap?  Chances are, you will never close that gap in your lifetime.

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