The argument AGAINST buying mandatory minimum auto insurance coverage
A recent case brought to light the hazards of underinsuring your vehicles. The State of Georgia presently requires mandatory minimum coverage of 25/50/25. As a brief reminder, this simply means that you have $25,000 in coverage for bodily injury to one individual, with coverage up to $50,000 for multiple parties. The last number refers to property damage coverage, in the above example, that would be $25,000. As you may or may not be aware, the rapidly escalating cost of medical treatment means that $25,000 will likely cover only an initial visit to the emergency room, especially if there is a series of diagnostic studies to determine whether there were any head injuries or soft tissue injuries. X-rays are cheap, but CT-scans and MRIs are very expensive. The phone call I received related to a car v. bicycle accident, where the cyclist broke his neck. Within the first 60 days, the medical bills had already exceeded $100,000.
Fortunately, the family who is being accused of being the at fault party had 100/300/100 coverage. But the reality in this case is that they are still exposed to the real possibility of not being able to resolve the claim for their policy limits, thereby risking their personal fortune and wealth. I am fortunate to be in my prime working years, and will have several decades of law practice ahead of me. But, for those who are counting down the months to retirement, being held liable in a lawsuit for significant damages to another individual could place your retirement plans at risk. This holds true for older experienced drivers nearing retirement age as well as parents of new teen drivers, who are at a statistically significant increased risk of getting into an accident. Fortunately, the vast majority of accidents do not involve any injury. But in those cases where there is a significant injury, mandatory minimums are simply not adequate.
This is especially true of the affluent East Cobb residents. The primary protection that someone has against being sued personally is having negative net worth. Laws protect your home, and your business against collection for your personal liabilities, but your liquid assets are always at risk. So is your second home, vacation property, and potentially the equity you have established in your first home. So after all these dire warnings, what should the average Around Walton reader do? There are four different aspects to protecting yourself, and you should schedule a sit down meeting to go over your particular situation with your agent to see what combination of protection is right for you. Here are the four things you should address:
Policy Limits: My personal feeling is that it is irresponsible to carry less than 100/300/100 coverage. In fact, you may find as we get to point #3 and #4, that may be the minimum you are allowed to carry if you implement my other suggestions. Do not let your budget dictate lower coverage because in the end you could end getting wiped out.
UM Coverage: One of the other issues you can address is uninsured/underinsured motorist coverage. According to recent studies, one in six Georgia drives are uninsured. This means if the uninsured driver is at fault you are likely to see $0 from them. If they had money, they would have bought insurance. If they can’t afford minimal coverage, they darn sure can’t afford your medical bills. By purchasing uninsured and underinsured coverage, you are hedging your bets against a serious injury where the other party simply can’t cover your expenses. I would be willing to bet, even though there are no statistics for it, if one in six are uninsured, three in six only cary the mandatory minimums. If that is true, and I have no reason to rely on that other than the general state of the economy, then only two out of six people who are driving would carry sufficient insurance to cover you in a serious accident. Get the maximum UM coverage your budget allows.
Stackable Policies: Once you obtain the UM coverage, make sure that the policy is “stackable". In some cases, the insurance company tries to save money by designating your UM coverage as “off set" by the at fault party’s coverage. To give you an example, lets say you pay five years of premiums for UM coverage with limits of $50,000. You are in an accident that results in $100,000 in medical expenses. The at fault driver had $50,000 in coverage. If your UM coverage is “off set", then you will get $0 UM coverage, because your $50,000 was offset by the at fault driver’s $50,000. That leaves you in a position where you will have unpaid medical bills and have to negotiate a reduction. Whereas a stackable policy will add the $50,000 from your policy on top of the at fault driver’s policy to provide you with $100,000 in coverage.
Umbrella Policy: If you have significant assets, or you have significant earning power over your career, you should strongly consider obtaining an umbrella policy. In my career, with my earning potential, someone would be more than happy to garnish my wages for the next 20 years to pay their medical bills. The same goes for doctors, high dollar real estate professionals, or other East Cobb residents that anticipate earning significant wealth. As soon as the injured party finds out I am a business owner and lawyer living in East Cobb, I will have a bullseye on my 401k and checking accounts. Therefore, I have a $2mil umbrella policy that covers my auto and home policy for any catastrophic damages that I might incur on a neighbor or fellow motorist. Umbrella policies are dirt cheap and provide a significant hedge against any major accidents. While it is highly unlikely that I will ever need such coverage, the fact that I have the policy in place helps me sleep at night. I have represented several client’s who’s damages exceed $1mil. Those types of accidents do happen, rare though they may be.
So schedule an insurance tune up with your agent and discuss what would best suit your needs.