Hello PIB readers. Question #1 on our “Top 5″ list has to do with auto insurance. I received a questions from John in Albany, Oregon, and John asks “I’m a life insurance agent, and I have always wondered how much is enough automobile insurance coverage. My agent (producer) tells me that since I have a clean driving record, I don’t need a ton of coverage, so he suggested the minimum state limits. I don’t think I’m comfortable with those levels of coverage. Could you comment? Also, are there significant differences in premium based on the deductibles? I ask because my agent tells me that there are big differences in the premium, and I am better off with high physical damage deductibles since I don’t have a tendency to get into accidents.”
Good question, John, and one that doesn’t always elicit a proper response from producers. Read on for my response!
I have heard everything from the sublime to the ridiculous on this question. Let’s be on point here…there is no such thing (for auto insurance) as “too much liability” coverage. Remember, the liability portion pays for injuries and damages to another party (other than an insured) that are caused by you. Also remember that lawsuits in this arena commonly end up in front of a jury, and juries have a tendency to side against the “big, bad insurance company.” This can result in awards that include damages over and above the actual costs involved in the loss. In addition to juries awarding damages for the normal stuff like bodily injury, wage loss, property damage, etc., we have been seeing awards that go well beyond the actual damages. Juries are commonly adding $$$ to the awards that pay the claimant damages for any number of other perceived losses, such as “loss of consortium” and other less-considered types of loss. Punitive damages are also being awarded to the claimant on a regular basis.
Remember that your legal fees are also included within your coverage limits. As soon as the carrier has paid and reached a coverage limit under a person’s policy for a particular case, the insurer’s liability ends. The insured is typically stuck for the remainder. Case in point: let’s say that you are carrying the minimum state liability limits of 25/50/10 for BI and PD. You get into an at-fault accident that causes an injury to one other person, and totals that person’s car as well. The MOST that your policy will pay the injured party is $25,000 for their injuries and $10,000 for damage to their car. What if the injuries end up costing $75,000 in medical bills, and the value of the car you totalled was $25,000? The insurance will pay $25k for the injuries and $10k for the car (the maximum policy limits for those coverages). What next?
Simple…you are on the hook for all dollar amounts that insurance did not cover! I hope that you have about $65,000 in the bank! Even though you had insurance, and have met the minimum financial responsibility requirements for Oregon, you are responsible for all damages not covered by insurance. You now have to cough up another $50k for the injuries and another $15k for damage to the other guy’s vehicle. Hmmmmm, now looks as if that additional premium for some higher coverage was a deal! Ah yes…hindsight is definitely 20-20! If you are unable to come up with the additional $$$, it’s likely that attachments, garnishments, levies and the like are in your future.
Remember! It’s the at-fault driver that’s financially responsible for injuries and damages caused, and this liability is easily transferred to the titled owner of the car in the event someone else was driving the car at the time of the wreck (another column would be necessary to discuss that one!).
Now what about those “big differences in premium” for higher liability limits? While it could be true that choosing higher levels of coverage could result in significant premium differences to the policyowner, most drivers will only see a small difference in premium if they raise that cursed BI and PD coverage level! For persons in preferred risk tiers for auto insurance, the difference (for example) between 25/50/10 and 100/300/50 is only $50-$75 (some higher, some lower) every six months. Now this will obviously depend on the other rating factors: driving record, territory, ages, marital status, etc., but the premise is sound.
What if you are in a standard or non-standard tier? That will affect the premium much more heavily. What if your credit is horrible, and that has affected your rates? The same thing will happen if you raise your limits of coverage; you will see much more pronounced differences in premium. Same thing goes for young drivers and those with bad driving records. Obviously, the better the rating tier in the first place means lesser changes to the premium if coverage limits are raised.
The same thing occurs with deductibles. All producers are aware that the “higher the deductible, the lower the premium.” No difference here. On my car, I am carrying $250 comprehensive (other than collision) and $1,000 collision deductibles. What if I decided to change the comprehensive deductible to $500? That saves me a whopping $4 every six months, and in the event of a comp loss- another $250 out of my pocket!! I think I’ll stay with the $250!
How about I lower my collision deductible to $500 from the current $1,000? That costs me another $48 every six months, or roughly $100 per year. I haven’t been in an at-fault wreck for more than 15 years, and I don’t anticipate that changing. So, I figure I’m about $1,000 AHEAD by choosing the higher deductible (do the math). Now that I have said that…I’ll probably get into an accident on the way home!
All that said…you have to “crunch the numbers” to see what works best for your customer. Don’t forget their preferences…maybe they want to pay higher premiums in order to get the lower deductibles and better liability coverage. If there is one piece of advice I can give you…DON”T SELL ON PRICE!!! Sell on price, lose on price. Sell your coverage, your company and yourself. Trust me on this one!
In closing…we all know that at times money is a serious object. For those customers that are in a money crunch (we have all had them), do whatever you can to make sure the client is aware that they can always raise limits and that you would be more than happy to show how it can be accomplished. Let them know your concerns about their choice in limits, inform them as to the potential pitfalls, and that you have concerns. Be professional and courteous…no threats, innuendo, or “you’re gonna have a problem” type conversations. Just let the customer know, in simple terms, of your concerns and then stay in touch with them over the coming months and years. That’s what produces happy customers, and happy customers mean REFERRALS!
Please let me know if you have any comments, questions, or concerns!