Do You Have Full Coverage? Are You Sure?

A Car Hits a Hydrant

It All Started with a Little Accident

A young driver hit a fire hydrant, causing a powerful fountain of water to shoot 30 feet in the air. (See Wedding Dresses Drowned on NBCSanDiego.com.)  The water pooled three feet deep on the roof of a commercial building, causing the roof to collapse over a bridal shop, drenching the contents. Several brides’ dreams of a beautiful dress at their weddings were ruined in a matter of minutes.  Not to mention, another couple’s livelihood was destroyed, at least for the time being. Thankfully, no one was inside at the time, so there were no injuries.

As an insurance agent, after making sure everyone is okay, I’m trained to look at tragedies like this from the business side.  The driver who caused the accident is on the hook to pay for any damage they caused. Anyone who has been in a fender bender knows that even a small scratch to another car’s bumper can cost $3,000 to $5,000 to repair.  (I know, it’s outrageous. But there it is.)

An accident like this can cause over $100,000 in damage to property in a matter of minutes.

Imagine if someone had been hurt, or killed in the accident or cave-in.  What’s a life worth?

Imagine if the original driver had been texting, talking on the cell phone, or worse: intoxicated.  How much  damages would a judge and jury want to add to the judgment to punish them?

Required Insurance in California

In California, we are required to carry $15,000 of liability insurance to pay for injury or death to a person, $30,000 total per accident, and $5,000 for damage to property.  These are the minimum amounts required by law. Without this much coverage, you cannot get a registration for your vehicle or a driver’s license.

Car Totaled in Fender Bender Cost $8,000

How Much Liability Coverage Do You Really Need?

A lot of people figure they don’t need much more than the minimum. The insurance company will pay that, and it’s all done. After all, if you haven’t invested in a home or business yet, and your car isn’t worth much, and you don’t really own much, what are they going to get if they sue you?  Like squeezing blood from a turnip, right?  …

You might be surprised.

• Did you know that if you lose a lawsuit, and the damages are greater than the amount of insurance you bought, you are still on the hook for the rest?
• Did you know that the victim in your accident is not limited to the maximum of your policy: they can sue for the actual amount of damages.
• Did you know that the judge can attach up to 25% of your income for 10 years to pay off the debt?
• Did you know that a judge can renew that judgment for another 10 years after that at a time till it’s paid off?

Look at your paycheck, and imagine losing 25% off the top, AFTER taxes have been withdrawn.  Yeeeowch!

Do the Math

When it’s time to update your insurance, do the math to figure how much you really are exposed, and make sure your insurance amounts are high enough to cover that.

For example, if you own a home and have any equity, add that to the list.  Add the value of any property you own.  Now add in 25% of your salary for the next 10 years.  THAT is the amount you want to make sure is covered.

If you own a business and/or have investments, add their value to the list, too.

The only thing they can’t touch is your retirement account.  So, whew, you can keep that out of the calculation for now.

For many people, the amount comes up to $300,000 or less.  But if you own a business, have a high income or have investments, it could easily top $500,000.  All the hard work you have invested in your business and your savings for so many years could go up in smoke in a matter of weeks.

Isn’t That What Underinsured/Underinsured Motorist Coverage is For?

That coverage is limited, too.  If the victim’s insurance doesn’t have enough coverage to make up for the shortfall in your coverage, you still have to come up with the difference. And, the other insured drivers in California have to pick up YOUR tab since you didn’t pay enough to cover yourself.  Not only do your premiums go up in the future, but so do everyone else’s.

What Can You Do To Protect Yourself?

Fortunately, most accidents don’t result in mega damages like this case might, especially when there are no injuries.  And the insurance companies tend to negotiate most of the cases to match the victim’s actual damages after an accident.  Most cases are settled out of court.  However, about 5-10% of cases make it to trial, and when they do, the average damage judgments are over $460,000.

If you have a lot of assets to protect, you should set your coverage levels higher.  If you have over $500,000 to protect, it’s time to look at umbrella insurance, too.

It might surprise you that adding up to $1 Million of umbrella insurance only costs a couple hundred extra per year.  When you look at the size of those judgments, that small extra investment can pay for itself 100,000 times over if a serious accident occurs.

Mind the Gap: Works both for the Metro and for Insurance

Mind the Gap

If you have ever been so fortunate to take the Metro subway in London, you would have noticed signs that say “Mind the Gap” to warn you not to trip on the space between the platform and the floor of the metro cars.   Likewise, there can be a gap in your umbrella coverage if you are not careful.

For example, if you have $300,000 in liability insurance on your auto, but your umbrella insurance doesn’t kick in until after 500,000 of damages, you still might find yourself on the hook for $200,000 before the umbrella can kick in.  So, if you’re going for the umbrella, buy enough of the regular liability coverage to make sure that any damages in excess will be immediately covered by the umbrella.

Confused?  You’re Not Alone!

I have a Master’s degree in business, and didn’t really understand these concepts until I studied for my insurance license.  Fortunately, your insurance agent can help you figure out what kind of coverage you really need to be as close to “Full” as realistically possible for most accidents.  While the sky is truly the limit when a jury is involved, so there really is no such thing as “Full Coverage,” you can make sure your coverage protects your family financially from freak accidents like the fire hydrant flooding the bridal shop. Or everyday accidents like the $8,000 fender bender that totalled my family member’s car.

Shameless Plug

Of course, if you don’t already have an insurance agent who is looking out for your best interests, I invite you in for a free consultation to go over your personal situation and review your coverages. You may be fine.  And if you are, I’ll tell you.  If you have some gaps, I’ll show you in detail, and give you some pricing options so you can decide how much risk you are willing to take for yourself, and how much you want to insure to protect.

And even better, I’ll review your coverage every single year to make sure changes in your life are covered.  When you buy a house, when your business grows, when you have kids, when you get boats, RVs, ATVs, motorcyles or other fun toys… I’ll make sure you’re protected at every stage of life.

That’s what I do!

Call me any time to discuss your situation, and I’ll help you make sense of it all.

I’m at 619-414-7723, or visit my web site to check things out at www.3amInsurance.com

Thanks for reading!

Anne McElvain

Lic# 0G5927