My friend Zach, an insurance agent for State Farm, and genuinely nice guy, said one of the most frequent questions he gets from folks purchasing insurance goes something like this: “Do I have ‘full coverage’ insurance??”
Zach’s answer is this: “Insurance people cringe when people ask this because there really is no such thing as ‘full coverage.’ Unfortunately people don’t realize it until an accident that their ‘full coverage’ was actually very limited coverage.”
Zach is right. Yes, I just agreed with an “insurance person.”
But what is he talking about?
What is typically described as “full coverage,” simply means that your policy includes liability (covers injury and damage you cause to the body and personal property of another), collision (covers damage to your vehicle, caused in a car crash), and comprehensive (covers losses from damage other than a car crash, e.g., theft, hail damage) coverage.
But “full coverage” is quite the misnomer. The primary reasons for this are twofold:
(1) It does not address policy limits. In Washington, you are required to carry a minimum of $25,000 per person / $50,000 per accident in bodily injury liability coverage and $10,000 in property damage liability coverage. These limits are inadequate. If you cause a collision that requires a hospital stay or a surgery or breaks somebody’s arm you’re already pushing those bodily injury limits. You dent a couple panels on somebody’s new BMW you’ve likely caused $10,000 in property damage. What many folks don’t realize is that, should your liability insurance policy fail to fully cover injuries that you cause to another person or people, your personal assets are exposed and you may be personally obligated to pay for damage you caused in excess of your insurance coverage.
(2) It leaves gaping holes in your coverage, i.e., you are NOT fully covered!
The “full coverage trifecta” does not include three additional types of coverage that I would consider essential:
- Uninsured/Underinsured Motorist (“UM/UIM”) Coverage. This coverage provides liability bodily injury and (usually) property damage coverage for you if an uninsured or underinsured motorist is at fault for a car crash and you are injured. According to the Insurance Research Council, 16% of Washington drivers have no auto insurance at all (and people who don’t have insurance generally have no personal assets to seize either, so they are what we call “judgment proof”). And many people have minimum liability limits insufficient to cover moderate or severe injuries or property damage. You cannot control what other people do, but you can control what you do. Make sure you have a UM/UIM policy with high coverage limits.
- Personal Injury Protection (“PIP”). PIP is no-fault coverage that pays for your medical bills and lost wages. Standard policy amounts are $10,000 and $35,000. If you are injured in a car crash and you have PIP, your medical providers should bill your PIP insurance. It has no co-payments and no deductibles. It applies whether you were at fault for the crash or not. It also applies where you are a pedestrian hit by a vehicle and, in some cases, if you are a bicyclist hit by a vehicle.
- Liability Umbrella Policy. For a modest amount of money (about $150-$200 a year) you can purchase a secondary layer of insurance coverage called an umbrella policy. An umbrella policy is generally offered with $1-$3 million limits and kicks in if you were to cause injuries or property damage above and beyond what is covered by your auto and home insurance policy. You do need to have higher auto insurance limits ($250,000/$500,000 generally) but it is well worth it. If you have assets, you need an umbrella. They are too economical not to consider. And p.s., you don’t have to own a home to get an umbrella policy. They are available to renters too.
So how much insurance should you get?
My answer is: As much as you can afford. Insurance coverage is an odd beast. Rates are highly variable between companies and are negotiable. You can take your current coverage and rates and find an insurance agent willing to work within your budget to get you better coverage. Protect yourself and your family. Because doing it after something happens is too late.