What Does Full Coverage Auto Insurance Mean?
Often when discussing a client’s auto insurance policy, I’ll ask the client if they know what their coverage limits are, and the response is usually something like, “Well, I’m not certain, but I know I have full coverage”. What exactly does that mean?
While there is no auto insurance coverage that goes by the name of “full coverage” most people have the expectation that everything is covered in an accident. But in reality is this really the case?
Auto Insurance - Basic Coverage
In the state of Utah you are required by law to carry a minimum of 25/65/15 for Liability Insurance. What are these numbers and what exactly is that for?
The first two numbers represent your Personal Liability Coverage Limits and the third number represents your Personal Property Liability Limit. Let’s look at the Personal Liability first.
The 25/65 is $25,000 Per Person/$65,000 Per Incident. So, if you’re involved in an accident and you are deemed “At Fault” the insurance company will pay up to $25,000 per person, $65,000 maximum if there is more than one person involved in the accident. That sounds pretty good until you realize that this must cover things like transportation to the hospital (ambulance or air evac), Emergency Room, any operations that are required, recovery time in the hospital, Physical Therapy, time off work, pain and suffering, etc. As you can see this can add up very quickly. What happens if you exceed the limits on your policy? You are then financially responsible for the excess.
Property Damage Liability Coverage is similar in that it covers what you hit: the other person’s vehicle, house, fence; their property. In the case of Utah state minimum, you have $15,000 coverage maximum. Again, if the claim exceeds the maximum on your policy you are financially responsible for the excess on the claim.
Is your full coverage auto insurance policy really providing the defense you need?
I was working with a guy who owns a business which he valued at around $500,000.00, owns a home worth $350,000.00 which contained some original valuable artwork, and has several cars. His net worth was over $1,000,000 and thought it was a good idea to have his auto insurance at the state minimum because he didn’t like to pay insurance. I had a difficult time getting him to understand how vulnerable he was by having $25,000 protecting over $1,000,000 of assets.
Insurance is intended to protect your assets from being taken by someone you have either harmed or has perceived that they have been harmed by you. It is your defensive shield.
This guy’s situation is similar to having a great quarterback, like Aaron Rodgers, on your offense and a Jr. High School football team as your defense. You may be expecting that you will save money and still have a chance to play to win other NFL football teams. However, in reality you’re most likely going to lose the game no matter how many points your great quarter back can score. Without a good insurance defense, the odds of winning are stacked against you and most likely you will end up losing the game (your assets).
The Importance Of An Insurance Review.
Make sure you sit down with your insurance agent and discuss your entire financial situation. Even if you’re just getting started in life and feel like you don’t have a lot of assets to risk, everyone has one asset that is potentially huge they fail to consider; their future earning capacity. If you wind up in a lawsuit to cover damages in an accident the court can garnish over 1/3 of your earnings to satisfy a court judgement.
So far we’ve only touched on the required coverages: liability. Again, this protects your assets from being attacked and makes the other person “whole” (brings them back to a condition they were in before the accident). We haven’t talked about your vehicle, your injuries or making you “whole” again.
There are a host of other coverages that can be involved including Collision, Comprehensive (Other than Collision), Personal Injury Protection, Medical, Roadside Assistance (Towing), Loss of Use (Rental Reimbursement), Uninsured Motorist Personal Injury Protection, Underinsured Motorist Injury Protection, Uninsured Motorist Property Damage, Loan/Lease Coverage, Glass Coverage.
Let’s talk about those on another posting.
Douglas Boyer - Agent
I began my career in the insurance business in January of 2011 focusing on auto, home and life insurance. I can help you design the right insurance plan to protect your family or business.
