Auto Liability Insurance Pitfalls
Low Limits, Inadequate Protection Equals Risky Underinsurance
Many drivers carry minimal liability coverage on their car, boat, snowmobile, motorcycle, RV and ATV. More protection is inexpensive and vital in avoiding financial ruin.
She’s an outstanding driver, accident- and violation-free for decades. Then one day, suddenly blinded by the sun, she accidentally runs a red light and demolishes a minivan carrying a dad and his three kids. Their injuries are devastating, and it’s her fault. The victims’ medical and rehab bills approach seven figures. The good news is she has auto liability insurance. The bad news is she’s probably woefully underinsured.
Every day, millions of underinsured drivers risk everything—their life savings, their homes, even their future earnings. With an investment less than the cost of a monthly pizza they could boost their vehicle liability coverage and protect themselves against potential financial catastrophe and years of litigation. But hardly anyone does. Why?
Liability—An Often-overlooked Vehicle Insurance Coverage
When drivers are negligent and held liable for a motor vehicle accident resulting in severe injury, death, pain, suffering or extensive property damage, their liability protection will pay the bill, right? Wrong, if they’re like most people who lull themselves into believing it could never happen to them, that negligence is someone else’s problem. Skimping on protection by choosing low liability limits to save a relatively modest amount of money on premiums can be a costly mistake.
What happens when a negligent motorist is sued and their policy’s low liability limits are less than a settlement or judgment against them? They must pay the difference—a difference that could wipe them out, and even result in garnishment of their wages for decades.
Liability Insurance: What it Is and How it Works
Auto liability insurance comes in two forms, split and combined. Split is expressed in the policy as three figures separated by slashes, which identify, in thousands of dollars, the insurer’s obligation—the “liability limits”—to pay for bodily injury, death and property damage claims. (Many insurers abbreviate on the policy’s “dec” (declarations) page: 100 means $100,000, etc.)
Consider an all-too-common barebones liability package, 100/300/50. The first number identifies the most the insurer will pay for any individual’s injuries in the insured’s or the other car (it never pays out for the driver’s injuries). The second figure, called the aggregate, sets the limit the insurer will pay out for all combined bodily injury claims, regardless of how many people were injured or killed. The third number identifies the maximum paid for all property damage inflicted—to other cars, trucks, perhaps a house or building destroyed in an accident.
A combined single limit (CSL), expressed as a single number like $500,000 identifies the most the insurer is obligated pay for everything—injuries, wrongful death, funeral expenses, property damage and destruction, and loss of use—often with no per-person sub-limits.
The Cost of Negligence
When a driver negligently kills a pedestrian, the victim’s family may sue for wrongful death and win. If the deceased was a young doctor, architect or businessperson, with millions of dollars in potential lost earnings, or a family breadwinner, the $100,000 maximum coverage a typical policy provides will be meager solace in the face of a huge judgment from which one might never recover.
Another scenario: a teenager triggers a freeway chain reaction pileup. Several luxury vehicles and an expensive motor home are extensively damaged, and life-altering injuries abound. (Young drivers, statistically more careless motorists than their parents, are liability-prone powder kegs in themselves). Would $50,000 in property liability coverage pay for all the physical wreckage, or $300,000 for the human carnage? Could a youngster’s aggressive behind-the-wheel habits jeopardize his parents’ present and future assets? Absolutely.
Insurance ads that promote switching to “save hundreds on your auto premiums” can be seductive. Understand how the savings are derived. Liability limits usually can be increased to $1 million for about $100 additional annual premium.
