Many people are looking for ways to cut monthly expenses; however, you might want to think twice before you cut back on your auto insurance coverage. When choosing an auto insurance plan, it’s important to understand the difference between liability insurance, underinsured motorist insurance (UIM), and uninsured motorist insurance (UM).
Many people get these very different coverage options confused and wrongly assume that if they purchase the minimum liability coverage required by the state, that they’ve got the coverage they need. It can be easy to think that purchasing coverage for an uninsured or underinsured motorist is a financial burden that’s not necessary; at least, until you actually need it. Sometimes it’s those hidden protections that offer you more value than you realize.
Is the minimum required insurance enough?
If you’ve ever been tempted to reduce your auto coverage, you might want to take a look at what you’ll be giving up. Of course, having minimum state required coverage is definitely better than not have any coverage at all; however, it can also leave you vulnerable. For example, minimum requirements will vary depending on state, but a common minimum requirement in many states is 25/50/20.
In this case, the 25 refers to the maximum amount of liability insurance for each person. So, if you are in a car accident and you are found to be at fault, your insurance would pay damages of up to $25,000 per person; however, the 50 refers to a maximum of $50,000 liability coverage per accident. The final 20 in this example means you have $20,000 for property damage. In many cases this coverage might be sufficient, but what happens if there are three or four people who each have injuries in excess of $25,000? What if property damage exceeds your $20,000 policy coverage? That’s where you could run into a serious problem.
If your insurance coverage isn’t enough to meet the needs of the injured parties, you could very likely be facing a lawsuit. This could mean the loss of your home, savings, and other assets, as well as long term financial consequences that could have your family facing hard times for years to come. If you are carrying just the minimum amount of coverage required by the state, you’re leaving yourself open to financial ruin if you are involved in a serious accident. Contact your local car accident attorney with questions, they all offer a free initial consult.
Understanding Uninsured and Underinsured Motorist Insurance (UM/UIM)
Many people don’t understand the difference between the various types of coverage that may be available to them. For example, most people know that they must carry liability insurance; however, this coverage does very little to help you if you are injured or your vehicle is damaged in an auto accident where you are at fault. In fact, your liability insurance only protects your financial liability to pay for the injured party’s damages; but, what happens to you and your damages? This is another reason why minimum coverage might not be in your best interest. You’ll have no protection or coverage for your loss.
Uninsured and Underinsured motorist coverage is designed to protect you if you are injured by a party without any coverage or without enough coverage. When you purchase UM/UIM coverage on your auto policy, you don’t have to worry whether the other party has enough insurance to cover your injuries, property damage, lost wages or legal costs. Your UM/UIM coverage will be there to prevent you from facing the financial responsibility of falling victim to an uninsured or underinsured driver.
What is umbrella insurance?
Umbrella insurance is basically insurance coverage that provides additional liability insurance that goes above your policy limits. This type of insurance can help protect you from major financial loss in a variety of situations, including auto accidents with injuries, property damage, and even lawsuits or personal liability. Even if you already have an auto insurance policy, an umbrella policy can provide coverage that will kick in when your policy limits are reached.
When you understand the various types of auto insurance coverage, it’s clear that carrying just the minimum required by law can leave you in dire circumstances if you are ever in a serious car accident. While you might save a little on your auto insurance premiums by paring down coverage to the bare basics, this type of coverage can leave you vulnerable to huge financial risks. Today, there are many people on the road who are either uninsured or who have just the minimum coverage, which could mean their insurance is not sufficient to protect you in the event of a serious accident.