These are extraordinary times. So much we have taken for granted has now changed. Auto insurance falls into the taken-for-granted category. Nothing is more important to protect you and your family. The insurance industry and how people purchase insurance has also changed and adapted to new technologies. I would like to review your insurance coverage as one of your last “home office projects.”
One of the remarkable repercussions of this extraordinary COVID era is the gratuitous reimbursements sent to us by the major automobile insurance companies. The carriers, who engage in remarkable statistical analysis and underwriting, realized they are still making huge profits and could spread some goodwill at a time when nobody is driving and there aren’t crashes and injuries.
With the stay-at-home restrictions lifted, the pent up energy is going to explode upon the roadways across Connecticut. People will take flight to restaurants, salons and friends’ houses to celebrate. The celebration is going to spill over into mistakes and negligence on the road. Your insurance coverage is more important than ever.
We are constantly bombarded with auto insurance ads extolling us to spend a short period of time and save a ton of money. Drivers no longer use brokers to obtain insurance, but go to a website and purchase very limited coverage at a very discounted price. Generally, these people have no assets beyond their very limited coverage.
Connecticut has just raised the minimum liability coverage from $20,000 to $25,000 per person and $50,000 per accident. The property damage minimum liability coverage is $25,000.
If someone causes an accident in Connecticut, and they are found to be negligent, their carrier will only pay the amount purchased in the policy. So if someone spent 15 minutes and only purchased $25,000 protection for one individual, or $50,000 for a carload, then that is all the insurer will pay in a claim.
Exposure Has Shifted From The Negligent Party To The Injured Party
Over the many years of my practice, this has created a tremendous shift in exposure from the negligent party to the injured party.
If there are medical expenses and a real, but non-devastating injury, the carriers will usually pay their policy exposure, $25,000, and move on. This has significant consequences if you have been seriously injured and have not protected yourself through your own policy.
The save-time-and-money purchase trend puts your family at risk, and has created a huge pool of underinsured drivers, but more on that later.
Here Are Some Policy Fundamentals:
- Connecticut used to be a No-Fault state.
- Ironically, former partner and a founder of Cramer & Anderson’s New Milford office, Paul Altermatt, was Insurance Commissioner in Hartford when No-Fault was enacted in 1974.
- Everyone had $5,000 medical protection in addition to liability protection.
- Whether you caused the accident or not, you had medical expense coverage for $5,000. This was protection for you and passengers.
- Then in 1993, when a higher No-Fault threshold, in terms of injury and loss, was being pushed by the insurance industry, Connecticut dropped No-Fault insurance.
- The $5,000 No-Fault guaranteed protection for you and your passengers was gone.
Look Into Medical Insurance on Your Auto and Home Policies
However, and very important, you can still purchase medical insurance on your auto policy in increments starting at $5,000 to $25,000. If you have this coverage, which is typically only a few more dollars in monthly premiums, this will be the first source of coverage for medical bills and expenses if you are involved in a motor vehicle accident. If you carry a high deductible on your private health insurance policy, spending $120 or $200 for $5,000 coverage or more a year makes great sense. Therefore, look into purchasing this “med-pay” protection.
I would also note you can purchase the same type of medical protection on your homeowner’s policy if indeed someone gets hurt on your property. This buys a tremendous amount of goodwill if that neighbor who visits once a year slips on your property and gets injured at your house. You can pay his or her bills. They may be less prone to sue you if they feel that your insurance has covered their medical bills.
Please raise your property damage level beyond the $25,000. Frankly, when is the last time you’ve been able to buy a new car for $25,000, albeit they do depreciate once you drive off the dealer’s lot. I would suggest an increment of $50,000 or $100,000 adequately protects you if you hit that Mercedes and even that four-door pick-up. Conversely, purchase “Gap Insurance” if your car is financed. It pays the difference between the Blue Book value of your vehicle and the amount still remaining on the loan, which is an amount not automatically covered by your basic property damage insurance coverage.
You are in the driver’s seat, so to speak, when you purchase your auto insurance. Medical treatment is expensive. So you should make sure you and your family are financially protected from another person’s claims if the unfortunate circumstance of an accident that is your fault should occur.
If you have a family, I would suggest purchasing no less than $250,000 to $500,000 liability protection. There are policies of $100,000 and $300,000; in other words, $100,000 per person/$300,000 per accident. However, if you own a home, this must be linked to what is called “Personal Umbrella Protection.” Especially in Connecticut, which is the third most densely populated state, you need adequate protection of yourself and your home.
Umbrella protection is sold in million dollar increments, which links liability coverage to both your auto and homeowner’s insurance. Most carriers require you to maintain at least a $250,000 liability limit to avail yourself of this extra layer of coverage. Therefore, if you are negligent and subsequently liable for the injuries to someone either with your car or on your property, the first line of liability protection, 250/500 will be expended. If indeed there are numerous individuals who are tragically injured, then, the umbrella of additional monies in $1 million increments kicks in. Therefore, if you have a 250/500 policy and a million-dollar umbrella endorsement, you really have $1.5 million dollars’ worth of coverage per occurrence and it is not that expensive. You may also protect your home from a judgment.
The Paramount Importance
Of Underinsured Motorist Protection (UIM)
Take a moment to juxtapose the coverage I just suggested as a homeowner to that of someone who just saved a ton of money in minutes. You have done everything humanly possible to protect you and others by purchasing adequate liability protection and an umbrella. Connecticut, as other states, came up with a brilliant concept of underinsured or uninsured motorist protection. If there is anything you take away from this article, I hope it is an understanding of this concept.
Uninsured or underinsured (UIM) protection is just that. If someone causes an accident and you are hurt and they have minimal or no insurance, you evoke your underinsured motorist protection. UIM coverage, as it is known, usually mirrors your liability coverage. For example, if you have $250,000/$500,000 liability protection, your UIM coverage will be the same.
Connecticut does allow you to waive down or reduce that. That is foolish. You must maintain your UIM protection at the same level of your liability protection. There are a few policies that actually let you mirror your UIM protection into your umbrella. Those are few and far between. A tremendous pitfall and something that is never discussed when you book your insurance online is that there is a dollar-for-dollar offset against your UIM coverage from what you receive from the person who caused the accident.
In other words, let’s say you have a minimal policy of $25,000 liability and $25,000 UIM protection. You’ve acquired these lower limits in the hopes of saving money on your insurance premiums. Now, let’s say you get into an accident that is someone else’s fault and are seriously injured and your medical bills and other damages equal $50,000. Now, assume the other person also has $25,000 in liability coverage.
The law is that the amount of your UIM coverage available is reduced by the amount of money received from the other person’s policy. That means, even though your injuries are worth $50,000, you have no available UIM coverage to help cover those damages because the amount of UIM coverage ($25,000) has been reduced to $0.00 by the amount recovered from the other person. This is why higher insurance limits are worth the additional extra premiums. In addition to higher coverage limits, there is a little known policy endorsement you can add to your policy for next to nothing which prevents this tragic result.
The ‘Conversion’ Endorsement
Conversion, Conversion, Conversion, Conversion. Say it four times like the jingle in that car insurance ad you have seen a hundred times. Purchasing a “conversion” endorsement is one of the most important protections you can buy for you and your family because it eliminates the reduction of your UIM coverage by the amounts received from the other person’s insurance policy. Let me give you a hypothetical.
You and your family are finally going to spend a Saturday doing errands; haircuts, COSTCO, lunch and other things you have been waiting to do. You are driving on one of those famously busy roads where all the box stores are located, which you dreaded even before staying at home for months. You enter the intersection under a green light—and bang.
Someone who saved a bunch of money on auto insurance in 15 minutes clobbers you and your family. One week later, you are sitting in our offices discussing your family’s medical bills, the length of time you now have to stay at home in a cast, and everybody is still sore. In a week’s time, I will probably call you and say the negligent driver has $25,000/$50,000 protection. You are stunned. Your $10,000 med-pay and all the money you spent on your family’s deductibles is almost twice that. Your injuries and lost wages haven’t even been addressed. I have already asked this question, but I will ask it of you again, did you purchase a conversion endorsement? The person who hit you is underinsured.
If you purchased a conversion endorsement, you will get the full value of your underinsured motorist protection. In other words, there will be no reduction for the monies recovered from the negligent party. In this instance, there will be no $25,000 deduction against your UIM coverage of $100,000 or $250,000 per person. This makes a difference.
Too often, and with increasing frequency, someone gets severely injured and there are hundreds of thousands of dollars in medical expenses, not to mention pain and suffering, and the underinsured motorist protection is reduced or obliterated by one payment from the negligent party.
The best case scenario was a client who purchased a conversion endorsement for her $250,000 UIM protection. The person who caused the accident had a limit of $250,000. That quickly was tendered by the carrier and, rather than having zero on her underinsured motorist protection, she had an additional $250,000, thereby doubling the amount of insurance protection available to her that would not have been available to her had she not had “conversion coverage.” Conversion endorsement, conversion endorsement, conversion endorsement.
If you belong to AAA, then there is no need to buy towing insurance. Please check your rental car amount. However, if you are not at fault, do not use your rental protection. Use the negligent party’s coverage. The same goes for the property damage. If you run the property damage through your carrier, they subsequently subrogate or recover from the at-fault insurance carrier anyway. You will receive reimbursement of your deductible.
So as we get on the road again, here is what I suggest. Take that reimbursement from your auto insurance carrier, acquire med-pay, get an umbrella if you are a homeowner and purchase a conversion endorsement. You will be protecting your family and others and the relative increased money spent on premiums will offer you peace of mind that is priceless in value.