By Remmie Butchko, CIC
Georgetown Insurance Service, Inc.
Silver Spring, MD
As Professional Insurance Agents this is one of our most frequently asked questions …..How much insurance is enough? What Limit of Insurance should I buy? What is the “right” amount of coverage?
For insurance buyers, it is one of the most commonly evaded questions you will ever ask. Agents are petrified to answer the question. For starters, there is no right or wrong answer. Secondly, what if a catastrophic event happens and they did not recommend enough coverage? The most likely result is a lawsuit or a claim against the agent’s Errors and Omissions Insurance.
Since I was asked this question just yesterday, I will both answer the question and evade it at the same time. How? By illustrating how much insurance IS NOT enough.
The insurance policy that I was furnished yesterday is written through USAA. The policyholder works in the office of a commercial insurance customer of our agency. While we have worked together for many years, the subject of her Personal Insurance has never surfaced.
USAA is a fine insurance company, and the rates are very good; however, the Limits of Liability Insurance on the Personal Auto Policy include:
$100,000 Maximum Bodily Injury Each Person. As anyone would imagine, an at-fault auto accident causing the death or permanent disability of an individual would probably be the worst-case scenario. Would it be possible to cause the death or disability of a married 30-year-old working parent who is making $40,000 annually? Look around you on the roads. They’re everywhere. Let’s do some quick math. This parent has 35 years of income-earning years left until retirement age 65. The impact on the surviving family is 35-years multiplied by $40,000 per year equaling $1,400,000 in lost income. This does not account for any (a) medical or rehabilitation costs (b) changes in income (like cost of living wage increases, raises, etc.) (c) lost benefits that may have been associated with employment (health insurance, 401k, etc.).
$300,000 Maximum Bodily Injury Each Accident. Obviously $300,000 is a lot of money, but it gets thin really fast if you start dividing it up. What if a policyholder is charged with an accident involving a vehicle with multiple occupants? What if there is an at-fault accident and the other vehicle has 4 occupants? $300,000 divided by 4 is a whopping $75,000 per person. In a severe accident this might not cover medical and rehabilitation costs, let alone lost income from the injury or disability. What if there are more than 4 occupants? Van? Bus? They’re everywhere.
$100,000 Maximum for Property Damage Liability. This coverage pays to fix property that you damage in an at-fault auto accident. While there are not a ton of private passenger vehicles worth $100,000 or more on the road, there ARE tons of commercial vehicles, trucks with expensive equipment mounted to them, and RV’s worth much more than that amount. That being said, the larger likelihood of $100,000 being too low is not necessary totaling a $100,000+ vehicle. The more likely scenario is accidentally causing a situation resulting in a multiple-vehicle accident. As mentioned above, $100,000 gets thin really fast when you start dividing it.
Bottom line, be very careful when selecting your Limit of Liability for your Personal Insurance, and in my humble opinion the best solution to avoiding low Limits of Liability is to buy a Personal Umbrella Policy…….limits start at $1,000,000…….but how much is enough? Maybe next time.