Thinking about buying or Renewing Auto Insurance? It’s never easy when you’re injured or your car is damaged as a result of a traffic accident. As car accident attorneys, we have seen the unfortunate results of a lot of mistakes made by our clients when they purchased their insurance. Those mistakes often leave our clients worse off after their accidents than they should have been. If you’re thinking about buying or Renewing Auto Insurance, please keep reading.
In this special report, we will tell you the five most common mistakes we see people make when buying or renewing auto insurance policies. We hope you can learn from these mistakes, and avoid them.
Mistake #1: Buying a deductible that is too high.
Solution: Never, ever choose a deductible that is greater than your cash on hand.
Theresa is a nurse. She helps sick people every day in a long-term care facility. When Theresa bought her auto insurance, she wanted to save as much money as possible. Therefore, she asked the agent to do his best to cut the premium. Unfortunately, she was involved in a car accident and injured her back. She had to see her family doctor, and she was forced to complete a course of physical therapy. Luckily, she got all better. But for about six weeks, Theresa couldn’t go to work. The nursing home refused to let her return to work until her doctor cleared her to return with no restrictions.
During that time period, she needed her automobile insurance to pay her lost wages under her Personal Injury Protection (or PIP, for short). It turns out that when she bought her ultra-cheap insurance, the agent sold her a policy with a ten thousand dollar PIP deductible. All of her lost wage claims were credited toward that deductible, which means she was not able to collect any compensation for her lost wages. Now, she is behind in her car payment, credit card bills, student loan, her kid’s daycare bills, and other obligations. How could this have been avoided?
First, understand what a deductible is. A deductible is what you pay out of your own pocket before the insurance company has any responsibility to pay on your claim. If you are injured in an automobile accident and you need medical treatment or wage replacement, then you may make a Personal Injury Protection (PIP) or Med-Pay claim. If you have a deductible on that coverage like Theresa, then you will pay the first medical expenses or the first lost wages up to that deductible. You could also have a deductible on your collision coverage. Collision is the type of coverage that repairs your vehicle after it is damaged in a collision. If you have a deductible on your collision coverage, then you are responsible for the cost of repairs up to the deductible. For example, if you have a $1,000 collision coverage deductible, you will pay the first thousand dollars towards the repairs of your vehicle. The deductible is what you pay before the insurance company pays.
Second, we suggest that you follow this simple rule: never select a deductible you can’t afford.
If you generally have an extra thousand dollars lying around that can be used to pay bills while you are out-of-work, then a thousand dollar deductible could be reasonable for you. If you have an extra five hundred dollars lying around that could be put toward your collision repairs, then a five hundred dollar deductible may be reasonable. But you should not choose a deductible that is higher than the cash you typically have available for unforeseen medical expenses, wage interruption, car repairs, and the like. Buying a ten thousand dollar deductible is like saying, “Hey, I have ten grand lying around! I’ll use it to pay medical bills and wage loss after a car accident.” If you don’t have ten thousand dollars lying around, then you have no business buying a policy with a ten thousand dollar deductible.
Mistake #2: You bought liability-only on a car you can’t afford to replace.
Solution: If you can’t afford to buy the car again right now, then get collision coverage.
Joe bought a car for his daughter when she graduated from high school. It wasn’t a new car but it was low mileage and in good mechanical condition. It was an older Volvo station wagon, and he figured it would be a safe car for her. He paid $4,250 for it and he put a new set of all-weather tires on at a cost of about $600.00. His daughter lost control of the car two weeks later and ran into a telephone pole. Luckily, she survived with only minor bruises. But the Volvo wasn’t as lucky – it’s inoperable. The insurance company has refused to fix it or pay for the total loss of the car. Joe bought liability-only and had no collision coverage. He doesn’t have another $4,250 to buy his daughter another car. Now she’s bumming rides from some guy with a van.
Liability-only does not pay for repairs to your vehicle. It pays for repairs to other peoples’ vehicles caused by your fault. If your vehicle was damaged through your own fault (or through no one’s fault), then your insurance is not going to cover the repair or replacement of your car under a liability-only policy.
To avoid this mistake, follow this simple rule: Purchase full coverage unless you truly can afford to replace the vehicle with cash on hand. If buying a vehicle to replace the damaged one is out of the question, then liability-only coverage should be out of the question as well.
Mistake #3: Waiving UM.
Solution: Buy as much UM as you can reasonably afford to protect yourself and your family from others’ negligence.
Tyler thought he did a good job securing a high-quality automobile insurance policy. He didn’t just buy minimum coverages. He went above and beyond, buying a quarter-million-dollar liability policy, a one hundred thousand dollar medical/lost wage policy, as well as both property damage and collision coverage.
There’s one thing Tyler can’t stand: irresponsible people. He assumed that Uninsured Motorist coverage paid benefits to uninsured motorists with whom he might be involved in an accident. He simply could not stand the idea of paying for coverage to insure irresponsible motorists who didn’t have the foresight to buy auto insurance. And so he waived UM.
Tyler and his two teen daughters were seriously injured when an uninsured driver ran a red light and smashed into their family’s minivan. Tyler came in to see us about pursuing a personal injury claim against the at-fault driver. Unfortunately, we had to tell Tyler that his family could sue the at-fault driver, but they would likely recover nothing as the at-fault driver had no insurance, no job, and no assets out of which to satisfy a judgment.
To add insult to injury, we had to explain to Tyler that Uninsured Motorist coverage does not pay benefits to uninsured motorists. Rather, it covers you and your family if you are injured by an uninsured motorist. Instead of suing the at-fault driver with no insurance, no job, and no assets, you look to your own insurance company to pay you the compensation you would have been entitled to receive from that at-fault, uninsured motorist. So by failing to purchase UM in an amount equal to his liability limit, Tyler needlessly prevented himself and his daughters from receiving fair compensation for their life-changing injuries.
To avoid this mistake, follow this simple rule: Always buy as much Uninsured Motorist Bodily Injury (UM or UMBI) as you can reasonably afford.
Note: It is estimated that 50% of the vehicles in Philadelphia are uninsured. We think UM coverage is the #1 most important coverage you can purchase.
Mistake #4: Leaving yourself without transportation after your accident.
Solution: Buy rental reimbursement coverage.
Kameka is a single mom. She has two young children. One is in kindergarten and one is in second grade. Kameka works second shift at a factory located 25 minutes from her home. It has great pay and benefits, and it would be terrible if she lost that position. Her mother watches the kids while she’s at work. Kameka was in a car accident last week. She did not carry rental reimbursement coverage on her automobile, which is now in the shop awaiting repair. Unfortunately, the at-fault driver who caused the accident was DUI. In fact, it was his fifth DUI. His insurance company is claiming that they can’t get a hold of him by phone (he’s in prison). Because they can’t get a hold of him, they can’t take his statement to find out his version of how the accident happened. And without his statement, they will not accept fault for causing the accident and provide Kameka with a rental.
So Kameka has no way to get her kids to school in the morning or to get to work. She’s going to have to rent a car on her own, keep the receipts, and turn them into the at-fault driver’s insurance company for reimbursement if and when they accept fault for causing the accident. Kameka could have avoided this problem simply by purchasing rental reimbursement coverage under her own automobile insurance policy. The rental coverage cost costs ALMOST NOTHING. In fact, if it were any cheaper, in many cases it would have to be free.
According to the website ValuePenguin.com, the estimated monthly rate for a State Farm rental reimbursement policy with $25 per day in coverage and a maximum of $600 per accident is just $1.36. (See Rental Reimbursement Coverage – What Is It and Do I Need it? by Michael Thrasher, at www.valuepenguin.com/rental-reimbursement-insurance-coverage, last visited November 9, 2015).
If you have more than one vehicle, you might not want to get rental reimbursement coverage. You could save a buck and half a month and if you’re in an accident, you can drive your other vehicle. But if you are a one-vehicle owner, then it would be hard to come up with an argument why you shouldn’t buy rental reimbursement coverage.
To avoid relying on others to drive you places after an accident: Buy the rental reimbursement coverage.
Mistake #5: Leaving yourself in danger of owing personally on a judgment.
Solution: Buy more than the state-mandated minimum coverage.
Dwayne got his first job after graduating from college. With his first real paycheck, he bought himself used Honda Accord and purchased basic automobile insurance, which carried the state-mandated minimum liability limit. Because he lives in Delaware, Dwayne’s auto policy carries a fifteen thousand dollar liability limit.
On his way to work, Dwayne was texting with his girlfriend. He failed to notice that a traffic light had turned red. He slammed on the brakes but couldn’t stop in time, and he rear-ended another car driven by Pamela.
Pamela injured her shoulder in the accident and needed surgery to repair a small tear to the rotator cuff, the complex of tendons and muscles in the shoulder. She is doing well after surgery but Pamela had let her auto insurance lapse, had no health insurance, and now needs Dwayne’s insurance company to pay $27,000 in medical bills, $11,000 in lost wages, and some amount for compensation for pain and suffering and other damages. All in all, the value of Pamela’s claim against Dwayne is between fifty and a hundred thousand dollars.
Dwayne’s insurance company has offered to pay Pamela the fifteen thousand dollars available under the limit in return for a complete Release of Dwayne. Pamela has not yet accepted the offer. Dwayne is wondering if he will be sued and have his wages attached for the rest of his life to pay for the injuries he caused to Pamela.
If Pamela sues Dwayne and goes to trial, she may end up with a judgment that allows her to attach Dwayne’s wages, and seize and sell his personal property to raise funds. In some states, Pamela could even have the Department of Motor Vehicles suspend Dwayne’s drivers’ license if he didn’t make timely payments on the judgment.
If Dwayne had carried a policy with a higher bodily injury liability coverage limit, he would have had enough insurance to pay Pamela a reasonable settlement. For example, if Dwayne had carried a one hundred thousand dollar bodily injury liability policy limit, then there would have been enough insurance to pay a reasonable settlement to Pamela in return for a Release. A Release is a document Pamela would sign giving up her right to sue Dwayne.
To avoid being personally responsible for payment of a judgment after a car accident, make sure you are adequately insured. Buy as much liability insurance as you can reasonably afford given your financial situation, and given the assets and income, you would want to protect from a judgment creditor.
Parting Thoughts from Author Ben Schwartz
No five-point guide is going to tell you everything you need to know to be an educated and informed consumer when it comes to a complicated subject like automobile insurance. Buy your automobile insurance from a trained professional, not online or over the phone. The best way to use this guide is to take it with you to your appointment with your insurance agent. Discuss this guide with your agent, and get quality advice about the types and amounts of insurance that you buy.
I certainly hope you found this guide informative and entertaining. Let me know if you found it helpful or how I could improve it next time I revise it. You can find me on Facebook at www.Facebook.com/schwartzandschwartz.
The author of this guide is Benjamin A. Schwartz, an attorney licensed to practice in the State of Delaware, United States of America.