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The THREE Biggest Mistakes People Make with Car Insurance

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By John Liber, Thrasher Dinsmore & Dolan 10-1-14, updated 6-11-18

I do not sell auto insurance.  But after 25 years of fighting the insurance industry through claims and lawsuits on behalf of injured people in many states including Ohio and Florida, I certainly have learned enough.  The following are the most common misconceptions about auto insurance and injury claims that I encounter about car accidents in Ohio.

1. If I am not at fault, the other driver’s insurance company will advance the costs of my damages.

WRONG!  Except for damage to your vehicle in an accident where the fault of the other driver is clear, his or her auto insurance company is not required  to advance you expenses for medical care, a rental car, time off of work, or other out of pocket costs.  That insurance company may in rare circumstances agree to cover such costs up front, but under no circumstances is it required to do so.

As a matter of fact, in most situations, the insurer for the at-fault driver will not pay for anything other than to fix your car – which they are required to do within 30 days per the Ohio Administrative Code.

2. It doesn’t matter how much insurance coverage I carry, if I am not at fault, the other driver’s insurance company will ultimately pay for all my damages.

BIG WRONG!  While Ohio requires motorists to carry certain minimum insurance coverage ($25,000 per person, $50,000 per accident aggregate), there is no other requirement for coverage greater than that.  Auto insurance is nothing more than a contract between the insurance company and the motorist.  The amount of coverage, the various coverage options (i.e. “comprehensive”, “liability only”, “uninsured and underinsured (UM/UIM)”, “medical payments”, etc.) are all options that the consumer (that is you) selects to pay for through a sales agent.

In the competition for your insurance dollars, the insurance industry spends vast advertising dollars to make you feel comfortable, part of a family, and/or a cherished member.  Of course, you are paying them for something you (and your insurer) hope you never need!  The insurance company is always your best friend when you are sending them a check to pay your premiums.  But the minute you have to make a claim, watch out!  They could transform immediately into your worst enemy – a true Dr. Jekyll and Mr. Hyde phenomena.

As part of this spirited competition, from my standpoint insurance companies really do a disservice to the consumers.  Instead of a critical need to protect from catastrophe,  insurance companies instead create the impression that buying car insurance nothing more commercial than the purchase of a can of soup at the local grocery store.  The cheapest price is the best, right?!  WRONG!!!  There is no greater tragedy than to find out your cut rate insurance company provides you with cut rate coverage when you need it the most – at the time of a crash.

Insurance serves two critical purposes:  (1) to protect you as the driver in case you are at fault and cause damage to others so that you are not paying anything out of pocket (or risk assets like your house or bank accounts if someone is horribly injured), and (2) to protect you and any occupants in your vehicle in case you are not at fault but the other driver has little or no insurance.  This is the utility of UM/UIM coverage and something that I strongly recommend that you not overlook.  UM/UIM coverage is an absolute necessity!  Do not let your insurance agent tell you otherwise.  And, just as importantly, make sure the limits of coverage for UM/UIM coverage are equal to that of your liability coverage.

Many of us think that driving a car is a convenience, a luxury, a sport and even a privilege.  But  more people are injured and killed in motor vehicle accidents every year than all the wars combined.  Indeed, driving a car is the most dangerous thing any of us will ever experience in our lifetimes.  Just as important is that while no matter how safe we may drive, we cannot control how other drivers operate their vehicles.  Also, we have no control over how much insurance other people carry.  You don’t know if that pick-up truck bearing down on you from the rear is being driven by someone with no insurance, or someone with full coverage and million dollar limits.  But, you certainly can control how much coverage you decide to carry.

This is a tough decision because insurance is not cheap.  It is also somewhat disconcerting that unlike purchasing something tangible or useful, the money spent on insurance may never be used.  How much insurance you can afford depends a lot on a combination of factors including your driving habits, the number of drivers in your family, assets that you possess that need to be protected, and/or what level of risk you feel you need to protect.  Most married homeowners with dependent children and more than one car need a fair amount of coverage.  Consider this; how much is it worth to you if you were injured and unable to work for 3, 6, or 9 months (or longer).  How much would that cost?  How much do you think the medical expenses would be to treat an injury that would keep you out of work for that long?  How much would it cost to replace your car, or cover a rental if it took more than a week to repair?  Cheap insurance will likely not cover these damages which are common in many severe collisions.

We have found that standard emergency room costs are in the $10,000.00 neighborhood if discharged the same day/night.  If one is admitted to a hospital, charges run between $15 – $20,000 per day!  Surgery, expensive radiology scanning (MRI, CT), our prolonged physical therapy all add up quickly.  $100,000 of insurance coverage can quickly be insufficient the more complex the injuries turn out to be.

In sum, if your damages exceed the amount of the at-fault driver’s insurance coverage, that carrier will issue a check to you for the coverage limit, and it is up to you (or your own insurance) to make up the difference.

3. The insurance company will treat me fairly and fully compensate my damages without me needing to hire an attorney.

If this were true I would be out of work.  As mentioned in part two above, once it comes time to make a claim, the insurance company transforms from your best friend to a mortal enemy.  Everything, and I mean everything is discounted, denied and delayed (what I call the three “D’s” of insurance claims handling).  Of course, the less it costs the insurance company the better treatment one will receive.  But once it involves ambulance travel, emergency room costs, hospitalization, surgery and extensive recovery, the insurance company begins to look for every means imaginable to pay as little as possible.

There are a few exceptions to this general rule, the major one being if your damages so far exceed the coverage limits of the at-fault driver.  Then his or her insurance company will be beating down your door to pay you the coverage limits (there is a legal reason for why they do this which is the subject of a separate article).  If this happens, then it will be up to your UIM coverage to step in and pay the damages that exceed the at-fault driver’s coverage (assuming you have opted for this coverage, and more insurance than the at fault driver).  Most of the time when a client tells me they have “full coverage” or “more than enough insurance”, I later find out (much to the client’s chagrin) that this is simply just not the case.

The insurance company is a business.  It is in business to make money.  And insurance companies spend vast fortunes on brilliant mathematicians (called “actuaries”) who use state of the art computers programs and formulations to determine exactly how much it will cost the insurance company (“risk”) to cover each one of us given certain factors (age, driving history, residence, vehicle, etc.).  The insurance company then sets the cost of the particular coverage you seek (i.e. “premium”) based upon the risk that they may have to pay a claim on your behalf, plus a built in profit.  So every premium payment you make accomplishes two important tasks (1) it pays into a fund that will pay out if and when you need to make a claim, and (2) it provides guaranteed profit to the insurance company, whether you make a claim or not.

This last point is critical.  Let’s say you complete a lifetime of driving without ever making a claim.  At your retirement party when your kids take away your car keys, do you think you get a letter of appreciation from your insurance company with a check for the years of premiums you paid without making a claim?  Not a chance.  Your insurance company will merely pocket the added profits and maybe purchase their executives a fleet of new private jets to whisk them away to the private golf courses on their private tropical islands.

Despite this built in profit margin, auto insurance companies also learned in recent years that they could save money (and increase profit margins) by discounting the amount paid in damage claims.  So instead of paying what the law requires as “full and complete compensation”, the insurance companies instead impose the previously mentioned “Three D” claims adjusting practice of Delay, Deny and Discount.  They see people without attorneys as ripe pickings to employ the three D scheme – and sometimes they try and get away with it when people are represented by counsel.

The insurance industry uses the civil justice system as a means to further carry out their miserly practices.  They have it down to a science as to how much they may have to spend on the costs of defending “x” number of cases in litigation as opposed to paying fair settlements to avoid the filing of lawsuits, and they work it to their advantage at most opportunities.

4. “Umbrella” Coverage is only for rich people – I could never afford that.

SUPER WRONG! If you (or your family) own a house and more than one vehicle you fall into a category that the insurance company’s enjoy calling “bundling.”  With an eye towards lowering the combined premiums of multiple insurance policies, insurance companies want you to include all of your coverages into one neat package.

One option that is surprisingly not well publicized is what is called “umbrella coverage.”  This is nothing more than an additional layer of protection that applies to any of the covered items you chose to include (home, auto, boat, ATV, RV, etc.).  Important point – make sure that if you consider umbrella coverage that you verify that it applies to your UM/UIM coverage.  Otherwise the utility of an umbrella is reduced.

Also, because it is not “primary coverage” that would pay out for smaller claims, often a person can purchase millions of dollars of umbrella coverage for very reasonable rates.  It is common for a $1 million dollar umbrella to cost only an additional $250 per quarter ($1,000 per year).  Be sure to consult with your agent because the options here along with the coverage amounts can vary.

ConclusionPurchase as much insurance coverage as you can afford! You and your family are much better served if you come to realize later on down the road that you overpaid for coverage you did not need as opposed to the tragedy of discovering that a miserly insurance strategy winds up leaving you with little or no coverage when you need it the most.

Good luck!