Car Insurance – What You Don’t Know Can Hurt You

January 9, 2013

Car insurance is one of those things in life we pay a good deal of money for, but seldom use. As a result very few of us, even lawyers, take the time to read and understand our car insurance policy. Most people have only a passing familiarity with the amount of coverage they have and what that coverage does for them.

This is not a situation where ignorance is bliss. While everyone need not rush to review their entire auto policy, it is well worthwhile to look at the declarations page which shows what coverage you have and decide whether it is the right coverage for you. This is certainly something you should discuss in detail with your insurance agent, but having a basic idea of what questions to ask is useful.

Automobile policies have two basic forms of coverage. The first type which lawyers call first-party coverages, are there to protect you if you are injured in an accident. First-party coverages also include the collision and comprehensive coverage which protect your vehicle. The second type, which we call third-party coverages, are intended to protect you if you injure someone else in a car accident.

The coverages which protect you if you are injured in an automobile accident include medical payments coverage, uninsured motorist coverage and underinsured motorist coverage. The rules which govern those coverages have changed several times in recent years. That makes it particularly important that you review your policy and discuss with your agent whether you are adequately protected if you suffer an injury.

Wisconsin law now requires everyone to carry automobile insurance, but the limits required under the law are far below what most people need to insure they are adequately protected. The minimum medical payments coverage under the law is $1,000.00. The minimum uninsured motorist coverage is $25,000.00 per person and $50,000.00 per occurrence. Underinsured motorist coverage is not required, although the insurance company must offer that coverage with a minimum limit of $50,000.00 per person and $100,000.00 per accident.

So what does all that mean? First of all, the per-person limit means that is the most amount you can recover as a result of injuries to one person in an accident. The per accident limit is the overall total amount that the company would be obligated to pay, no matter how many people might be injured.

Let’s talk about the adequacy of those limits. In this day and age $1,000.00 in medical payments coverage would just about cover an emergency room visit. Most people probably also have health insurance that would cover some or all of their expenses, but medical payments coverage can be very helpful to fill in the gaps. One thousand dollars is simply not enough. Until recently, the law required $10,000.00 in medical payments coverage and that is certainly a more reasonable number.

Uninsured motorist coverage protects you if you are injured by someone who does not carry insurance. Your first reaction may be that since insurance is now required, that should not be a problem. Unfortunately, there are still many people on our roads without insurance, and uninsured motorist coverage is essential to protect you if you are injured by one of those people.

The current mandatory limits of $25,000.00 per person and $50,000.00 per accident are well below what you would need to be adequately compensated if you suffered a significant injury in an accident. The law formerly required $100,000.00 in uninsured motorist coverage per person and $300,000.00 per accident. Again, that limit is far more realistic than the current minimum limit. The cost of purchasing the additional limits is relatively modest and should be given careful consideration.

The situation with respect to underinsured motorist coverage is even more concerning. Underinsured motorist coverage protects you if you are injured by someone who does not have enough liability insurance coverage to compensate you for the injuries they have caused. Underinsured motorist coverage is not required at all. Insurers must offer limits of $50,000.00 per person and $100,000.00 per accident, amounts which are again quite inadequate. You should carry at least the $100,000.00 per person and $300,000.00 per accident limit that was formerly required. The cost of doing that is relatively modest. You can discuss the cost and what limits would be adequate for you with your agent.

In deciding what to do about your underinsured motorist coverage, you should keep several things in mind. Because the required amount of liability insurance is only $25,000.00 per person and $50,000.00 per accident, there is a very real possibility that you can be involved in an accident with someone whose coverage is far below what would be required to cover your medical expenses and compensate you for a serious injury. Indeed, in recent years we have seen a number of cases where that has occurred.

You should also remember that the amount of your underinsured motorist coverage, under most policies, will be reduced by any amount you recover from the insurer of the person who injures you, and possibly by other amounts as well. That means that the limits you purchase are more than you will receive from your own company – one more reason to ensure that those limits are adequate.

Let’s move on to the third-party coverages, which protect you if you injure someone else. Before doing that, I would note that in recent years we have seen a number of instances where clients’ uninsured or underinsured motorist coverage was less than the liability coverage which protects them against claims by others. In effect, the policies were providing more protection to people who the clients injured than they were to clients if they were injured. In my mind, that makes very little sense, particularly because the cost of protecting yourself and your family through uninsured or underinsured motorist coverage is quite modest compared to the cost of other coverages in auto insurance policies.

The third-party coverages under an auto policy are property damage coverage and bodily injury liability coverage. Property damage coverage is just what it sounds like-coverage with protects you against claims for damage you may have caused to another vehicle or other property. The minimum required coverage under our current law is $10,000.00. Given the cost of cars and car repairs these days, that is simply not sufficient.

Bodily injury coverage protects you against claims by others who are injured in an accident which you cause. The current required limits are $25,000.00 per person and $50,000.00 per accident. The law used to require $100,000.00 per person and $300,000.00 per accident. We believe that is a far more reasonable amount of protection. Given the costs of medical care, injury claims can easily exceed $25,000.00, and, in fact, it is not rare to see medical bills well above that amount.

The cost of increasing the liability limits should be relatively modest. You may also want to consider purchasing an umbrella policy, which would provide a far higher level of protection. Those are issues you can and should discuss with your insurance agent.

It is our hope that you never have to use your auto insurance. If you do, you will want to be sure that you and your family are adequately protected.

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For more information about "Car Insurance – What You Don’t Know Can Hurt You," contact Mike Riley at mriley@axley.com or 608.283.6778.