Insurance: The Myth of “Full Coverage”

I just saw this good explanation of the myth of “Full Coverage” with auto insurance. As an insurance agent, I constantly have people coming in saying they want “full coverage”. It is usually because when they bought the car the salesman told them that they needed “full coverage”. What is really needed? I usually start off lightheartedly with my clients telling them they cannot afford “full coverage” but we can give them coverage that will make the bank happy and protect them too.

The bank (or car salesman) that that tells you that you need “full coverage” really only cares that you have comprehensive and collision coverage to fix the car if it is damaged with a maximum of $500 deductible. They don’t care if you even carry liability coverage - but the state does, so I usually begin with showing a client the minimum coverage that will make the state and the bank happy. From there I will explain why they should have more than the minimum and why they should carry other coverage such as Personal Injury Protection (PIP) and Uninsured Motorist. (The article referenced above has a good explanation of these coverages.)

There is a popular myth if you have purchased “full coverage” from your automobile insurance company, you will be covered for anything and everything when an automobile accident occurs. It is only after a collision that the myth of “full coverage” is soon replaced by the reality of “insufficient coverage.”

Even if a client purchases all 5 coverages (Liability, Comp, Collision, PIP, and Uninsured Motorist) they not “fully covered” for as the article states they now just have “some coverage” in each area. We try to avoid using the term “full coverage” in the office because of this confusion and it really is not important whether you have “full coverage” or not - the important thing is to have enough coverage to protect yourself and your family if an accident occurs.

• Liability Scenario: If you cause a major accident or slide on the ice and take out a city light pole at $150,000, who will pay for it? You (by selling your home) or your insurance company?
• Medical Scenario: If someone hits you and has insurance, then their insurance will pay but does not have to pay until you settle the claim. That could take months or even years. Who pays the doctors and hospitals in the meantime? Your health insurance from work will not pay for it because the other guys insurance is ‘primary’ and they will pay (eventually). Personal Injury Protection (PIP) on your policy will pay now (up to $10,000 or $35,000 per person depending on what coverage you have) and wait to get reimbursed from the other insurance company.
• Disability Scenario: If you are hurt in a car accident and cannot work for 2 or 3 months (or more), who will pay your groceries and your mortgage? PIP in Washington can cover them. The $10,000 limit, in addition to medical coverage, will pay a maximum of $200 per week. The $35,000 limit will pay up to $700 per week. I don’t know about you but with only $200 week (or less with no coverage) either I would loose my house or the kids would not eat.
• Uninsured Motorist Scenario: If the guy who hits you has no insurance can you just suck it up and wish him the best while you or a family member were maimed or killed? If he had no insurance there is probably not much use suing him since if he had any money he probably would have had insurance too. You could have the court garnish his wages - and get $100 a month for the next 35 years, if you are lucky and can keep track of him.

Hopefully the above examples painted some pictures as to why you need to be “adequately covered”.