Do you need to check your math on car insurance? – III
All this week, our blog has been discussing the pitfalls of absentmindedness in relation to car insurance. Specifically, how consumers may be costing themselves hundreds of dollars per year by neglecting to pay any attention whatsoever to the actual amount of coverage for which they are paying or whether adjustments are in order.
To that end, we discussed in our last post how adjustments to first-party benefit coverage could help the average consumer realize significant savings. In today’s post, our final in this series, we’ll examine the ways in which adjustments to liability coverage could help the average consumer save even more.
Adjustments to liability coverage
As implied by the name, liability coverage is designed to cover the damage — both bodily harm and property — for which you are responsible.
While liability coverage undoubtedly grants peace of mind concerning legal exposure, it’s important to understand that this coverage is by no means sacrosanct. In other words, you can safely make adjustments to your coverage level without compromising real legal protection.
The first step, say experts, is to determine your net worth. While this may sound like a massive undertaking, it essentially involves subtracting the total amount of your assets by the total amount of money you owe.
Whatever amount this is determined to be is roughly the amount of liability coverage that you should have, say experts.
By way of illustration, consider a young person whose assets (bank accounts, retirement accounts, property, etc.) total $90,000 and who debts (student loans, credit cards, etc.) total $20,000. Here, the person has a net worth of $70,000 and would therefore want their liability coverage to be close to this amount.
The inference to be drawn from this admittedly complex issue is that a person with a modest net worth generally needn’t pay for more coverage than is necessary given the dearth of assets against which a potential plaintiff could actually seek to recover. Indeed, experts indicate that it’s likely that a plaintiff would seek additional recovery via their own underinsured motorist coverage.
Here’s hoping these posts have helped illustrate why you might want to consider having a discussion with your insurance agent sooner than later or, at the very least, why you might want to pause before making next month’s auto premium payment.
Source: Nasdaq, “Making sure you are getting the right amount of car insurance,” Dec. 6, 2016