By Remmie Butchko, CIC
Georgetown Insurance Service, Inc.
Silver Spring, MD
“How much insurance do I need?”
This is one of the most common questions we as insurance agents get on a regular basis – and it comes with no easy answer. In fact, most of us avoid answering it completely. For example, in the event of a catastrophe, did we recommend coverage? How can we ensure our clients will be covered in an accident or other unforeseen event? To steer my clientele in the right direction, I often flip the question and attempt to illustrate how much insurance is not enough.
For the purposes of this article, let’s focus on auto insurance. A few years back I worked with a client and was asked to review a personal auto policy for an employee. While she worked with a reputable insurance company with great rates, her limits of liability were questionable. Here’s what the policy included:
$100,000 maximum bodily injury each person:
Being at-fault in an auto accident that causes the death or disability of another individual is likely your worst-case scenario. But in the world of insurance, we must always be thinking about these types of situations. Imagine that you’ve been in a car accident and caused the death or permanent disability of a married 30-year-old working parent who is making $40,000 a year. Would $100,000 be enough coverage? Let’s imagine this parent has 35 income-earning years left until the retirement age 65. The financial impact on the surviving family would equal 35 years multiplied by $40,000 per year, for a total of $1,400,000 in lost income. What’s more, this number doesn’t account for any medical or rehabilitation costs, changes in income (such as living wage increases, raises, etc.) or lost benefits that may have been associated with employment (like health insurance, 401k, etc.).
$300,000 maximum bodily injury each accident:
Obviously $300,000 is a lot of money, but it gets thin very quickly when you start dividing it up. What if a person is at-fault for an auto accident involving a vehicle with multiple occupants? For example, let’s say there’s four people in a vehicle. If you divide $300,000 by four that would mean each person gets a whopping $75,000. But in a severe accident this might not be enough to cover the medical and rehabilitation costs, let alone the lost income resulting from injury or disability. And what if there are more than four occupants? Let’s say you hit a van or a bus, then what? This is another example of why you need to work closely with your insurance agent to carefully choose your coverage limits.
$100,000 maximum property damage liability:
This coverage pays to fix property you might damage in an at-fault auto accident. While there aren’t a ton of passenger vehicles worth $100,000 or more on the road, there are a ton of commercial vehicles, trucks and RV’s worth far more than that amount. Of course, the likelihood of $100,000 being too low doesn’t mean you’ve gotten into an accident with a $100,000+ vehicle. The more likely scenario is accidentally causing a situation that results in a multiple-vehicle accident. And just like mentioned above, $100,000 gets thin fast when you start divvying it up.
The morale of the story is to be very careful when selecting limits of liability for your auto insurance policy. As someone who’s been in this industry a long time, I find the best solution to avoiding low limits of liability is to buy a personal umbrella policy, starting at $1,000,000 of liability coverage. Although you’ll never know exactly how much coverage is truly enough, you can do your best to ensure you’re protected in the event of large and potentially devastating liability claim.
Have questions? Contact us to speak with a licensed insurance professional.