The Truth Behind “Minimum State Liability Coverage” : What your insurance agent might not be telling you!

More often than not I am receiving a call that starts off with “I am looking for the cheapest rate on my auto insurance and was told you could probably help me”.

As much as these start off’s on conversations make me want to cringe, it also reminds me that there is a very hard reality that most consumers have no idea what they are buying when it comes to insurance and have an even less of a clue at how exposed they really are.

What is ultimately even more unfortunate is that at some point in time their existing insurance agent (if applicable) has placed them in a policy that not only doesn’t fit their needs but also leaves them completely flapping in the wind if they actually ever had a claim.

What I hope to accomplish in this article is to help consumers understand the importance of liability insurance in a more focused way. We won’t be discussing fun things like physical damage coverage, glass breakage, or even rental car coverage. (What, am I the only one who thinks those are fun things?)

The only thing we are focusing on is what is liability insurance coverage and what you should do when you don’t have enough. Oh, and not to worry friends, you are talking with a 32 year old insurance agent… there will be nothing boring about this article. So scoot on forward to the edges of your seat, because that’s all you’ll need.

Let’s Get It.

I live in Worst Case Scenario Land.

I in fact don’t just live there, I am the mayor of the town.

I talk “what-if’s” and “this is why’s” all day, every day. To say I have seen it all is an understatement. So what gives right? Why are such horrific things still happening? Such as claims not being covered, or not having enough insurance coverage, when your insurance agent knows the dangers of what could happen.

The sad truth about this is that most agencies don’t care. That’s right, I went there. Just to give you a small piece of insight agents are paid two ways:

New Business Written Premium
Policy Renewals

So ultimately by you accepting a policy, that agent is getting paid. So what happens when you don’t accept the policy because the “rate” wasn’t the best?

They don’t get paid.

See where I am going with this? Agents, including myself, must write business in order to put food on the table and build a book of business that can ultimately renew and create residual income. (Am I giving away our secrets here fellow agents, or what?) As sad as it is, this can sometimes make the difference between writing a policy to “get it” and writing a policy that is properly covering the customer.

So, the meat and potatoes… here we go:

What is Auto Insurance Liability Coverage?

How many times have you as a consumer looked at an auto insurance policy and been like… WTF? Admit it… raise your hand. I am talking to you.

You are not alone, shoot, just a couple years ago I was the same way! The amount of people who I talk to yearly that actually know what liability coverage means is shockingly low. They don’t know because they are not educated by the “authority in that space” which in this case is their insurance agent. So what should your insurance agent be telling you and/or asking you about your liability coverage?

In the State of Minnesota, state minimum liability limits are broken down as 30/60/10. Did I lose ya? Ok, here is what it really means. If you are found negligent in a car accident and cause physical body injury to another party your insurance company will pay:

$30,000 per person/60,000 per accident/10,000 for property damage!

Let that sink in for a minute.

You have $30,000 to fix driver Joe if you rear end him and he gets taken to the emergency room. After that… they are coming after your personal assets. So you might still be thinking well $30,000 is a lot of money, and I would say I completely agree and would love someone to just hand that kind of money to me. So to make this a little more A meets B meets C here is the breakdown of some emergency service costs in the state of Minnesota, if you were injured in an accident.

Ambulance Ride

According to Allina (one of the largest ambulance service providers in the state) on average costs someone $1,900.00 to be transported from the scene of an accident to the emergency room. Keep in mind this is an average for the transport. Any extenuating injuries would be just in addition to the transport cost if it required medical supplies on the way to the hospital. Keep in mind it is pretty safe to say if someone if being transported to the hospital via ambulance, the chance that they will just need a band-aid when they get there isn’t very likely.

Helicopter Ride

So what happens if the ambulance ride isn’t enough? Here in Minnesota, a good chunk of commuters have to travel Minnesota’s most dangerous freeways. The blessing to this freeway system is the ability to have space to land a helicopter. However, what most people don’t know is that according to NBC News, Air Ambulances, rides range between $12,500-25,000 per flight. That is a national average. Not far behind though is the $8,700.00 it will on average cost you for a helicopter ride here in Minnesota to the nearest hospital.

Emergency Room Visit

Did you know that just the thought of entering an Emergency Room in essence costs you money? No, I’m just kidding, but shoot…might as well be serious.

If you are in the State of Minnesota, it costs you on average anywhere between $2,000 (for minor stuff like a “Hi how are you? Here is a fancy wrist bracelet!”) to upwards of hundreds of thousands of dollars. They run the gambit especially if you are involved in a car accident. Which of course… they should. No one knows what injuries a “wreck victim” has when they fly into the ER.

Rehabilitative Costs

Most people tend to think in the scope of “the day of”, when in the insurance world we have to also think of the after-math. What most people don’t realize is that you can’t put a price tag on permanent damage to a person. Insurance companies can try, but the reality of it is you are on the hook for whatever the other party feels necessary and could be granted by a judge. Think a lot on that one, let it really hit in your gut. A judge who doesn’t know you, doesn’t know the other person, only knows that you killed someone in an accident that truly was just that, an accident. That judge decides if it is fair to grant the other party 1 million dollars in settlement costs or if 10 million is sufficient. Rehab and incurred damage costs are the after-math of any and all car accidents.

What happens if you don’t have Enough Coverage?

I feel like the insurance agent in me should try to be as direct as possible so let me make this 100% clear. If you don’t have enough coverage, they will come after you personally.

Here is a great example of an accident gone wrong that doesn’t involve injuries:

David was driving his old beat up vehicle down Highway 10 at a reasonable speed. After experiencing a tire blow out he was unable to regain control of his car and hit a metal guard rail along the freeway. There were not any injuries, however there was extensive damage to the guardrail on the freeway. After getting a relative to come pick him up and have his vehicle towed (no longer runs) he took peace in knowing no one was injured. *Fast forward 2 months later* David receives a bill from the State of Minnesota in the amount of $22,000 for damages he caused to the guardrail that needed to be torn out and replaced.

Why did this happen?

David was driving a “beat up” junker that didn’t have adequate property damage liability coverage. He had state minimum coverage at $10,000. So even though there were no injuries at the accident David is still responsible for the damage he caused to the guardrail.

There are certain laws in each state that protect certain assets like 401K’s, IRA’s, your home, etc… (to be sure on what is and what is not protected please contact your independent insurance agent since each state varies). However, if you have assets that need protecting then you need to make sure you have enough liability coverage and property damage coverage in place to cover them.

How do you get the needed Liability Coverage on a budget?

I know you all have been waiting for this section.

How do you get the liability coverage you need to without having to get a loan? This might seem difficult for most but what I would encourage you to do is remember this one statement I always tell my clients struggling with the decision of increasing liability limits (no you aren’t alone)

You don’t have a choice as to whether or not you want to fix the other person or property you caused damage to, but you do have a choice as to whether you want to fix yourself.

Well sure that might sound funny now but after you read this section you will understand exactly what I mean.

3 Tips on how to increase your Liability Limits without Breaking the Bank

Increase your deductibles on your comprehensive and collision coverage– As I mentioned before we aren’t going to go too much into comprehensive and collision coverage but this is an option to being able to increase your liability limits. See, when you increase your deductibles on your own policy you are accepting more risk out of pocket. Therefore… it lowers your insurance rates. So what I recommend doing is increasing your deductibles to counteract with carrying higher liability limits.
Utilize every discount option you have– Paperless discount, Lo-Jack discount, multi-policy discounts; these are all discounts that should be looked at as ways to increase your liability coverage. Sure, everyone wants to save money…but did you know the difference between a level of liability limits is normally just as little as a Starbucks Venti Latte (ok fine Venti Iced White Mocha) a month? By utilizing these discounts as tools to increase your coverage you will more than likely absorb any increase in cost.
Shop an independent insurance agent– I could not drive this one home enough. An independent insurance agent has choices. Like you do when you go to Starbucks (yes I am a Starbucks junkie and I am not sorry) and you stare at the drink menu thinking “what do I want today?”. Yes, that is the independent insurance agent. Just call us the barista of the insurance world. If your agent has ever suggested to you state minimum coverage it is normally because they didn’t have another choice to get you a better rate. Which in of itself is a horrible excuse but… it is just that… an excuse. By shopping an independent agent you are giving yourself an agent who can search multiple companies at one time in order to provide you with coverage limits adequate for you without sacrificing on your family’s budget.

The reality of it is this. If you chose to carry state minimum liability limits, then that is a choice that I would challenge you to explore. I would also challenge you to question the agent that allowed you to carry them. Not just to you but to others on the road around you. Is it fair that a family of 3 that just lost their daughter in an accident you caused, to have to fight you in court to earn some of their medical expenses back? Is it fair that your spouse has to do it after losing you in an accident to a driver who carried minimum limits on their auto insurance? The answer to these questions is no it isn’t fair. Be responsible in your insurance and take the time to work with an agent that will care enough to educate you. Don’t let yourself be vulnerable to an agent that treats you as a number. Liability limits that don’t fit your needs is more than an oversight. It is an irresponsibility.

All it takes is one time…and trust me…as I mentioned above, it could and might happen to you. Don’t let one accident turn into a lifetime of debt and recovery. Get Educated and Get Serious about your insurance.