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Auto Insurance: "FULL COVERAGE"

Whenever a prospective client uses the phrase “Full Coverage,” I become concerned that this person’s insurance may be less than what is either needed, or what they could have afforded and therefore should have purchased, had they only understood the significance of their decisions while purchasing the auto insurance policy. The term Full Coverage, in the context of auto insurance, is generally used to sell a policy. After all, “Full Coverage” is a comfortable sounding phrase. It inspires confidence. But, in the harsh light of a real world injury claim, the phrase “full coverage” may not be particularly significant.

Now, bear with me, while I frame this issue for you in a less typical way. All of us are constantly bombarded with advertising from the insurance industry: on TV, internet, radio and print. Most of those ads pertain to auto insurance. Currently (2014), “cute” seems to be a popular route to the inner workings of the consumer psyche: think Progressive’s “Flo,” or Geico’s Aussie accented lizard. Another equally popular sales approach is to appeal to a consumer’s “fear:” think of Allstate’s “Mayhem” + violence, Farmer’s “University” dean + violence, or State Farm’s deeply voiced spokesperson and former actor depicting U.S. President on Fox’s “24" + violence. These ads would not be blasted at us ten times or more in an average hour of television viewing, if this didn’t effectively sell insurance. Such is the public mind-set in which auto insurance is sold: we’re either going to buy insurance in response something that is cute, or more likely were buying insurance because we’re afraid (and “cute” is just a diversion).

In buying auto insurance, it may not even be possible to avoid being unconsciously influenced by these marketing campaigns based on making us afraid. In this context, the term “Full Coverage” is all the more effective a sales pitch. It is helpful to consider your (California) auto insurance purchase in terms of a choice between two alternatives:

(A) Are you buying this auto policy to protect yourself and your family against someone else’s potential claim against you? Or,

(B) Are you buying this auto policy to obtain specific benefits which will best help you and your family in the event that a COLLISION occurs and YOU or someone in YOUR FAMILY is injured?

Since California law requires all drivers to have minimum coverage limits of only $15,000 per person and $30,000 per any one incident (regardless the number of claimants), you can still buy a policy that can be described as “Full Coverage,” that affords only these minimum liability limits. And if YOU have purchased such a minimum limits policy, and YOU were negligent and caused the COLLISION, YOUR insurance carrier will pay that claim, at or within the minimum limits and that will likely be the end of the matter.

However, if YOU have bought a “Full Coverage” policy and YOU or YOUR FAMILY were injured in a COLLISION caused by a negligent third-party, who was either uninsured, or like YOU, had a minimum $15,000 per person/$30,00 per incident policy, YOUR “Full Coverage” policy may provide you with only a fraction of the insurance resources that you would then need, but would not have. This is the circumstance that you must avoid.

An auto “accident” can happen to anyone at any time. Using the word “accident” to refer to a life changing collision, is like referring to a perpetrator of a strong-arm robbery as a “gentleman.” When someone drives into an intersection against a red traffic signal, or fails to recognize that 65 mph traffic on the highway has suddenly come to a full stop, these are acts in violation of law. They are negligent acts. These acts can and do injure other people. COLLISIONS can and often do change lives. It’s better to refer to these events as “COLLISIONS” or “incidents.” A child spills a glass of juice - that’s an accident. A licensed driver runs a red light, broadsides a car lawfully driven through the intersection, causing the driver of the broadsided car to suffer a shoulder injury that requires surgery, results in several months of disability and consequent loss of earnings, requiring a year of rehabilitation before reaching a point of “maximum medical improvement,” this isn’t an “accident.”

So, if you’ve bought a “Full Coverage” policy, you need to consider (Like Option “B” above) whether YOUR auto insurance policy is going to protect YOU and YOUR FAMILY from the consequences of a collision. A California minimum limits (15/30) auto policy, whether described as FULL COVERAGE or not, is not adequate.

Auto Insurance policies can, but are not required to, contain many distinct types of benefits. These include: (1) Liability; (2) Collision; (3) Uninsured Motorist; (4) Uninsured Motorist Property Damage; (5) Medical Payments; and (6) Comprehensive. Of these six types of auto related coverages, only “Liability” insurance is required. Whereas the FULL COVERAGE sales pitch typically applies to any one policy that includes only three types of coverage: Liability, Collision and Uninsured Motorist. So, given that there are at least six major components to auto insurance and buying only three of the six can legitimately be described as FULL COVERAGE, a consumer can be easily confused.

All the discussion above about “Full Coverage” ultimately leads to the subject of POLICY LIMITS. This refers to the amount of money available in response to any given claim, As discussed above, a California minimum auto policy limits affords the insured with liability coverage in response to the claims of others against YOU, up to maximum of $15,000 per person and up to $30,000 per any one incident. Since California law requires that insurance companies must offer UNINSURED MOTORIST (“UM”) coverage to all customers (note that a consumer can sign a written waiver of UM coverage, but doing this is very much ill-advised), a California minimum policy also typically includes $15,000/$30,000 in UM benefits. However, the $15,000 per person and $30,000 per incident minimum coverage levels were enacted by the legislature decades ago, when $15,000 and $30,000 had much, much more value than it does now.

I propose that you think about auto insurance, not in terms of “Full Coverage,” but rather in terms of SMART COVERAGE: What combination of auto policy coverages will protect YOU and YOUR FAMILY from the potential consequences of a COLLISION. Remember that “Full Coverage” may refer only to the combination of liability and collision coverages, while not addressing the more important question of whether your auto insurance provides you with adequate coverage. In my experience, one should never buy a minimum policy limit policy, unless you absolutely cannot afford a higher limits policy. Policy limits of $15,000 per person and $30,000 per incident are inadequate for Californians in 2014.

Here are my recommendations for purchasing auto insurance:

1. LIABILITY - this protects you from claims brought by others against you, arising from your negligence. Policy limits exceeding $15,000 per person and $30,000 per incident (15/30) are sold by insurers in increments of 25/50, 30/60, 100/300, 250/500 and upwards. By buying a higher than minimum limit LIABILITY policy, YOU afford YOURSELF the opportunity to purchase equally higher uninsured motorist limits, which can be extremely important. (See #3, below.)

2. COLLISION - this compensates YOU for damage to YOUR insured car up to a specified amount. If your car is financed, you are usually required to purchase this coverage; if your car is reasonably new, you should have this coverage; if your car is getting on in years, and you would not be financially devastated if you were not to receive the car’s “fair market value” at the time of its “total loss,” then you may be better off dropping or declining collision coverage.

3. UNINSURED MOTORIST (“UM”) and UNDER-INSURED MOTORIST (“UIM”) - This coverage is not required but it is absolutely essential. No one gets to choose the person who drives drunk, or runs a red light, or types away at their cell phone behind the wheel. That person saw the same insurance company advertising that you have, and they are as likely as not to be looking for the best price. Since the best price in insurance, typically involves less coverage and lower policy limits, then if YOU are injured in the ensuing COLLISION caused by a driver who is either uninsured altogether, or who purchased a minimum 15/30 policy, then unless you have pro-actively protected yourself and your family by buying a higher than minimum LIABILITY and UM/UIM limits, you can end up in a horrible situation. Even if you have medical insurance, you will need more in the event of a COLLISION. UM/UIM coverage is essential: buy a higher than minimum limits policy with UM/UIM coverage.

Example #1, if you are injured in a collision caused by a third-party, and the reasonable value of all your claims arising from the collision is $100,000, but the person who caused the collision had a $15,000 per person, $30,00 per incident minimum limits policy, all the money that you are ever going to get from or on behalf of that third-party, will be $15,000; if your auto liability policy, like his, has limits of 15/30, even if your policy has UM/UIM coverage, your policy affords you with no additional benefits, because your UM/UIM policy limits of $15,000 per person does not exceed the negligent driver’s $15,000 liability policy limit; however, if you had an auto liability policy with limits of $100,000 per person, $300,000 per incident, and your UM/UIM coverage had corresponding 100/300 limits, this would afford you with an additional $85,000 in “under-insured motorist” (UIM) benefits, on top of the $15,000 policy limit paid on behalf of the at-fault driver.

Example #2, UM and UIM coverage is based upon California state law. It protects the driving public by ensuring that insurance coverage will be available for losses that arise out of the “use of an automobile.” YOU may not have considered this before, but your auto policy’s UM coverage insures YOU in the event that YOU are injured by an uninsured, or under-insured, third-party driver whose car hits and injures YOU while YOU are walking across a crosswalk, or while YOU are riding YOUR bicycle.

4. UNINSURED MOTORIST PROPERTY DAMAGE (“UMPD”) - This is a little, niche type of coverage, that applies to the situation where YOU do not have COLLISION coverage on your policy (e.g., because the fair market value of car is too little to justify the substantial cost of this coverage), but YOUR car ends up destroyed by a person who is uninsured. If you did not have this coverage, in that circumstance, you’ve now got to go looking for and buying a replacement car, with no insurance benefits coming from your policy. Since the premium cost of this coverage is generally very affordable, I recommend buying it.

5. MEDICAL PAYMENTS (Med Pay) - This coverage provides payments up to a specified policy limit, for your insurance company to pay “all reasonable and necessary medical expenses” incurred for treatment of injuries sustained by YOU and EACH OCCUPANT OF YOUR CAR arising from a collision incident. Med Pay is sold, in increments of usually $1,000 or (now more typically) $5,000 per person. For a big family, or the “Soccer Mom” a $5,000 per person medical benefit, is valuable asset. There are different types of Med Pay coverages, and the most critical differences between Med Pay coverages involve, what are typically called “Excess” Med Pay benefits. An “Excess” Med Pay benefit, is designed to pay for whatever medical costs are not covered by YOUR health insurance. However logical this concept may sound, when described by someone selling insurance, Excess Med Pay is almost unworkable in practice, it takes months to accumulate and present the information required for submitting a claim, and then pays almost nothing when it does pay. My recommendations are (1) always buy at least $5,000 in Med Pay, but (2) do not buy “Excess” Med Pay.

6. COMPREHENSIVE: If you have a nice car, and the condition and appearance of this vehicle is important to you, and you can afford the added premium, buy this. Otherwise, don’t lose sleep over its not being included among your auto insurance coverages.

In closing, auto insurance is the kind of product that we have to buy along our entire adult lives. This product is constantly being marketed to us in ad campaigns to promote our being afraid and making this purchase based upon price and fear. And there is the real problem: too many people are buying low and lower cost auto insurance and that’s a legitimate reason for being afraid. Driving can be dangerous, to anyone at any time. In our current society, we get the justice that we pay for ourselves. Californians cannot reasonably rely upon the “other driver’s” auto insurance for resources and protection. The best we can do is to make informed, intelligent decisions as consumers. As a personal injury lawyer, working every day on behalf of seriously injured people, I have a long, close and continuing perspective on how the types and amounts of auto insurance that my both my clients and their adverse drivers have purchased, affects my clients’ health and quality of life. The annual or semi-annual act of buying auto insurance absolutely presents the opportunity to make several very important decisions. Make smart and informed choices, and don’t find false comfort in the phrase “full coverage.”

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