I’ve had on many occasions the very unpleasant task of sitting across from a client and telling them that the person who injured them didn’t have enough to cover their losses or that they don’t have enough coverage to handle the claim being made against them.
The most common answer to “what coverage do you have?” is “I’m OK, I’ve got full coverage”. However that’s just a general description. It’s like someone telling you “I’ve got a vehicle…but you still don’t know if it’s a car, truck, SUV, etc.
Full coverage just means you have most, if not all, of the major coverage categories offered to you. Everything depends on the details.
You need: Liability: Enough so that the person you injure in an accident takes your insurance money and doesn’t come after you. If you are “judgment proof”, for example have no regular job, no career, no assets, then you may be able to get away with the Kentucky required minimum of $25,000 per person, $50,000 per accident. Even then, you’re betting that bankruptcy will save you from a judgment that could follow you for 15 years or more.
If you don’t fit that category, then raise your limits to what you feel keeps you safe from a judgment that could attach your house, your vehicles and your paycheck. I usually recommend 100/300 (that means $100,000 per person and $300,000 total per accident) as about the least a person of average means should have. You’ll be surprised just how little that raises your premium over the minimum, depending on your company and your driving record. If you have more to protect, get your limits up higher and consider a personal umbrella policy to raise it to one million. That is a policy that starts where all of your others leave off and usually costs somewhere around $250 to $600 per year, again depending on your record and your company.
Property damage: That’s the amount that covers the vehicle or other personal property you damage. The state required minimum in Kentucky is $10,000 and it doesn’t take much looking around the average parking lot to see that most of the vehicles, two and four wheeled, would cost more than that to replace. With the higher liability limits above, the property damage limits will be higher.
Again, the idea is to have enough insurance so that the person harmed does not have to come after your personal assets to be made whole.
Collision: That’s the coverage that lets your company pay for fixing your car or motorcycle. It can apply regardless of whether you or the other person is at fault.
Uninsured Motorist: This one usually gets an argument. Why, people say, should I have to buy coverage to cover what somebody else doesn’t have? Aren’t they supposed to be insured? Yes, but the simple fact is that a lot of them aren’t. If you’re in an accident in which an uninsured is at fault and you don’t have uninsured coverage, your medical bills, lost wages (above the PIP…see below) and pain & suffering aren’t going to be compensated.
Underinsured Motorist: This means that if the guy who injures you has less coverage than it takes to compensate you for your damages, your own company steps up and covers you for the difference, up to the limits you’ve purchased, if necessary. It does not cover property damage to your vehicle.
For both Un-insured and Under-insured coverage, you should buy as much as you feel comfortable with. As a rule of thumb, for under-insured, count on the other guy having no more than $25,000 and for Un-insured, of course, figure on him having nothing.
Personal Injury Protection (also known as “No-Fault” or “Basic Reparation Benefits”): This is insurance on your vehicle that pays your medical bills and some lost wages, and a few other items, regardless of who is at fault for the accident. If you have car insurance, it’s included in the policy. If you have a motorcycle, this subject is of vital importance in Kentucky because of a peculiar quirk in the Kentucky Motor Vehicle Reparations Act, KRS 304.39 et seq. as it applies to bikes. The subject can’t be covered completely in the space allotted here (there’s an article about it elsewhere on my website) but remember this. You should either purchase Personal Injury Protection (not “pedestrian injury protection”…that’s something different) coverage as a separate line item on your policy with a separate premium or you should complete the form to reject it for motorcycles only. If you don’t do one or the other, you may have a $10,000 setoff in what you can recover from the person who injures you in an accident on your bike. Standard PIP is $10,000, but additional coverage in similar increments can be purchased separately. There’s a very good reason for doing that, but it’s more complicated than will fit here.
The above is not intended to be a comprehensive treatment of a very complicated subject. There are many large volumes of law books dedicated to insurance coverage and its many confusing subtexts. It is only a brief overview, designed to get you thinking about a topic you don’t want to have to think about, but must.
All of these recommendations will raise your premium, but probably not as much as you think. The “takeaway” is this: Remember that the purpose of insurance is not to be as cheap as possible, but to protect what you have to lose.