These are numbers that we often see in our office:
Do you know what they mean? You probably recognize that you have the same or similar numbers on your car insurance, but 9 out of 10 people that we talk to, have no idea what these numbers mean. Most insurance companies illustrate their coverage in this format. The first two numbers represent liability (HLV) coverage within the policy; the third represents property value.
So let’s give an example of something that could happen. Tomorrow, you’re driving to work a little cranky because you didn’t get enough sleep. The sun is shining in your eyes, making it a little hard to see, and the radio has a terrible song on, so you reach down to pop a CD into the player. Before you know it, you’ve smashed into a man also driving to work. After you realize what has just happened, you jump out of your car to realize that you have just killed this man.
There doesn’t need to be any financial consequences for this to be a nightmare, but on top of the devastation, you will soon come to find out that his family needs you and your insurance company to compensate them for their husband/father who is no longer providing for them. We’ll assign a common HLV to this person of $2,000,000. Your insurance company would of course step in to help, and they would write the family a check for $50,000 (the first number above represents the maximum liability to any one person, if there had been multiple people hurt, the company would have paid up to $100,000 – the second number).
After your insurance company pays its share, you now owe this family $1,950,000. Can you pay it? It would take most people the rest of their lives to work this number off. Certainly, the family who is suffering needs the help and unfortunately, now, your family is suffering as well.
The final number of the three is the property damage limit. $50,000 would cover most cars, but might not cover a really top end car, or multiple cars in the case of a pile up. This number might need to be higher, but you can see that the first two numbers are where the serious liability is.
An obvious solution to this problem is to raise the coverage limits. We’ll discuss the best way to do this in the next post
Let’s make another couple points about auto insurance. Many drivers on the road do not have insurance. The last number I heard in Texas was 1 in 4 don’t have it. If you do not have Uninsured motorist protection, then you are not giving yourself the same protection under your policy that you are giving others. It is true that there might be some redundancy between this coverage and your other types of insurance, but it does not cost much to cover yourself in case you’re the one badly hurt.
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Photo credit: J_RADLOFF