Only Pay for What You Need?

­A consultation with a recent client inspired me to write this blog. I hope to educate my friends and community about misleading advertising that insurance companies often employ when attracting clients.

What Insurance Coverage do you Need?

Television and the internet are flooded with certain insurance companies advertising, promising that you will “only pay for what you need.” What does that really mean? What do you need from your insurance? There are lots of ways to look at it, but to your insurance company you “need” only what you are legally required to carry (if you can’t get that requirement waived). For automobile insurance, state law requires you to have liability coverage and personal injury protection coverage. Liability insurance pays on our behalf for harm we may cause another driver as a result of our negligence or the negligence of another insured driver under our policy. Personal Injury Protection (often called PIP) provides for a minimum of $3000 in medical coverage which applies to policyholders regardless of who may be at fault in an accident. 

If you eliminate all other coverages, you are not only removing Comprehensive Coverage that would pay for repairs if your vehicle is struck by a falling tree. You are also eliminating standard (but not mandates) coverages for Uninsured and Underinsured Motorists. The law expects that you will have uninsured and underinsured motorist coverage, but it does provide the option to waive these important coverages by a signed writing. If you can sign a paper and waive the legal requirement, does that mean that you do not need uninsured and underinsured motorist coverage?  No!

you can waive underinsured motorist coverage, but At what cost?

The cost of uninsured and underinsured motorist coverage is very small compared to the cost of the legally required liability insurance, and it is the uninsured and underinsured motorist coverage that provides some degree of protection for you and your loved ones who may be injured in a car accident with a driver that does not have insurance or is not adequately insured to cover the extent of your injuries.

I recently worked with a family who had both parents pass away in an automobile accident which we believe was caused by the negligent actions of another driver. That other driver had insurance, but only a low limit for liability coverage. The family members of my client, the victims who passed away in the accident, had a very generous liability policy which included a $1M umbrella policy for protection if they caused an accident that harmed another driver. However, their insurance agent only sold them the state minimum limits for uninsured and underinsured motorist coverage—just $25k.  Their agent apparently said they did not need good UM and UIM coverage.  These drivers knew the value of insurance, as demonstrated by the purchase of good liability coverage for others on the road, but the agent they trusted didn’t educate them on the value of uninsured and underinsured motorist coverage that they or their surviving family needs after a tragic accident.

So when you hear the advertisements saying, “pay for only what you need,” you are being deceived. You need uninsured and underinsured motorist coverage with sufficient limits to protect you—whether you are legally obligated to carry it or not.

How Insurance Agencies work, and Why You May Need More Than They are Selling You

To understand why some insurance agents may not educate you or recommend generous coverage for uninsured or underinsured motorists, there are some things you need to understand about the insurance industry. Insurance agents are paid based upon their Premium Volume (the money collected from you for the policy) and they typically receive bonus payments based upon having a low loss ratioLoss ratios are a comparison between the value of insurance policies an agent sells and the claims the company paid out for those policies. The premium expense for underinsured and uninsured motorist coverage is typically only dollars a month for decent coverage. The value of the premium is so low that the agent makes no significant money for selling you that policy. But in the event of an accident caused by an uninsured or underinsured motorist, the agent’s loss ratio could significantly increase which reduces their annual income.

A Good Insurance Agent Has Your Back

A good insurance agent will sell you insurance coverage that protects you for a reasonable price, without considering the possible effect on their loss ratio. An insurance agent that promotes selling you “only what you need” (meaning only liability insurance and PIP which are legally required) and thereby eliminating or minimizing uninsured and underinsured motorist coverage is looking out for themselves, not you.

Please don’t fall victim to this misleading advertising. Purchase insurance from a good agent who truly has your best interests at heart. And, if you have been in an accident and have any questions about your own or the negligent driver’s insurance coverage please don’t hesitate to contact me.

Randall K. Spencer has recovered many tens of millions of dollars for his clients related to wrongful deaths, auto accidents, plane crashes, train crashes, semi-truck crashes, motorcycle accidents, slips and falls, and many other incidents caused by negligent acts of others. In his civil litigation practice, Randall has represented business both as plaintiffs and defendants in everything from simple contract or real estate cases to multi-million-dollar business litigation matters. Randall has represented multiple families who have lost loved ones due to medical neglect and other negligent conduct of doctors, hospitals, and psychologists. In Randall’s criminal defense practice, Randall is experienced in trials from Murder cases to speeding tickets and most everything in between. He has handled many white-collar crime matters in both the criminal courts and administrative proceedings.

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