Automobile Insurance - How Much Should I Purchase?

Automobile Insurance - How Much Should I Purchase?

    Every State has a mandatory liability insurance law. These laws require all drivers on the roads have liability insurance covering for what is “bodily injury” in case of an accident. Don’t confuse liability insurance with full coverage insurance. Liability insurance and full coverage insurance are not the same.  Liability coverage pays for bodily injury and property damage in case of an accident. Full coverage insurance (insuring the full value of your motor vehicle) pays you for the property damage to your vehicle even if the accident was your fault.  Without full coverage on your automobile, if you cause an accident the damage sustained to your car will not be covered.  Thus, full coverage only protects you against the property damage to your car in case you cause an accident or if an uninsured driver damages your vehicle.  

Liability insurance pays for property and bodily injury in case of an injury accident.  South Dakota law mandates all owners of an automobile driven on the roads of the State insure their vehicle with a minimum of $25,000 per person / per accident insurance policy. If an accident occurs, a liability policy will cover damages for injury up to $25,000.  However, $25,000 is the minimum required by South Dakota state law.

              Because injuries from motor vehicle accidents often cause serious lifelong permanent injuries and death, most often $25,000 is not adequate to compensate an injured person for the damages they sustained from the accident. If you injure someone whose damages far exceed your policy limits for bodily injury you may be held liable for any and all excess damages.  Today medical bills of injured parties often far exceed the minimum $25,000 bodily injury limits.  As such, it is wise to insure yourself for potential damages caused from a motor vehicle accident far in excess of $25,000.  While your premiums may increase, having sufficient amount of insurance in case of an accident protects not only someone you may accidentally injure it also protects you in case you are injured in a motor vehicle accident.

              Example:  You are T-boned by a vehicle that is insured for bodily injury of only $25,000. The accident was the other drivers fault. Your injuries from the accident include a head injury, a back injury and a fractured pelvis.  You required emergency medical treatment and surgery.  Your medical bills are a staggering $125,000.  If you had liability insurance of $500,000 per person / $1,000,000 per accident you would be able to collect the at fault’s party insurance of $25,000 and pursue a claim under your own policy pursuant to Underinsured Motorist Coverage (UIM).  In this example you would be able to recover up to $475,000 ($500,000 - $25,000 = $475,000) in UIM coverage.  In this example your excess insurance coverage protected you from serious bodily injures caused by a driver who had only $25,000 in insurance coverage (underinsured).

              Likewise purchasing a larger amount of liability insurance for bodily injury protects you from potential catastrophic financial obligation in case you injure someone else.

              Example:  You T-Bone a vehicle.  The accident is your fault.  You have a policy protecting you for up to $500,000 per person / $1,000,000 per accident.  The injured party suffers injuries including a head injury, a back injury and a fractured pelvis requiring emergency medical treatment and surgery.  The injured parties’ medical bills are $125,000.   

              In this scenario you are responsible for the $125,000 in medical bills, the injured parties lost wages, pain and suffering along with permanent injury and loss of enjoyment of life resulting from your own negligence. If you only had $25,000 of automobile insurance coverage it could lead to potential catastrophic financial ruin or bankruptcy unless you have adequate assets to compensate the injured party.  However, if you had a $500,000 / $1,000,000 liability policy you may or may not have sufficient coverage to compensate the injured person without having to include any of your own personal assets to compensate the injured party. 

              Because injuries can be catastrophic it is important to not only to adequately protect yourself with a higher limits insurance policy it also protects you from financial responsibility in case you injure a person greater than your bodily limits insure against.  I urge you to annually contact your insurance agent and review your automobile policy annually to ensure you are being adequately protected.  

Grant G. Alvine
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