In my last post on this topic, I explained what I had learned about collision and personal injury protection insurance. The other two policies I purchased for my motorcycle are a bit more complex.
- Liability - This is the policy with the most complex implications but is also the most common. If you live in a state that requires you to have auto insurance (don't they all?), then this is the type of insurance their talking about. The amount of liability coverage I buy determines how much the insurance company will pay out in the event I screw up. Higher amounts of coverage cost more.
Fundamentally, its easy to explain. In the event I make a mistake while driving, the insurance company will pay for the damage I caused. This damage may come in the form of property damage (such as to another vehicle or structure I may have run into) as well as bodily harm to others.
Establishing which party is liable in a given event can be tricky. Often it is up to the police to make this assessment and state laws come into play as well. If I end up in a collision where it is established that I was 0% at fault then the amount of liability coverage I have is irrelevant; I am not liable for what took place and my insurance company won't be paying out under this policy.
In the converse case, if I am 100% at fault, then all damage is paid by my liability coverage. What if the amount of liability insurance I have isn't enough to cover all the damage caused? The short answer is that I personally am on the hook for all expenses past the coverage amount of my liability policy. For example, if I run into another car and am 100% at fault, causing $250,000 of damage and I only have $100,000 of liability coverage, then the insurance company will pay $100,000 and I personally pay $150,000. What if I don't have $150,000? This is where things get tricky and I deal with this later.
If $250,000 of damage seems like it might be hard to cause, well, you haven't paid hospital bills lately. Remember that damages include bodily harm and unless you deal with the medical bills often you probably have no idea just how expensive things can be. Here's how things turned out in my case: I got an ambulance ride of 10 blocks during which time I was given an IV of fluids. Once in the ER I was carefully and simultaneously examined by a half dozen doctors, had several x-rays and an MRI of my foot taken and was administered some morphine. A plaster split was put on my foot, and I was taught how to use crutches. I spent a total of 4 hours in the ER of which half of that time I was literally laying around doing nothing in an empty room save one nurse and two student nurses. In terms of ambulance-delivered ER cases, I'm sure mine was relatively uneventful.
I was billed $20,000 that morning in the ER just by the hospital. The state of Kansas requires no less than $25,000 of liability insurance. Its easy to see that if you are liable in an auto collision that sends somebody to the hospital, $25,000 is probably not going to go very far. Most people who get ambulance rides to the ER will end up needing further medical treatment beyond that day. $25,000 just isn't enough. I think there is a case to be made for the state of Kansas to increase the minimum amount of liability coverage but that's another topic. - Uninsured/Underinsured - If you understand how liability coverage is supposed to work, then uninsured and underinsured policies are straight-forward.
Let's say I'm involved in a collision and am 0% at fault. Furthermore, let's say the other party has chosen to break the law and forgo purchasing liability coverage. In this case, they are 100% at fault and the damages I sustain would be paid out by the other party's liability policy. But if he/she has not liability coverage, then there is no insurance company on the other side to pay for the damages I have sustained.
This is where my uninsured/underinsured policy would step in. Up to the dollar amount specified in the policy, my own insurance company would pay for the damages sustained even though it was entirely not at fault. This would also be the case if, say, the other party liability coverage was insufficient to pay the damages. Using the same example, let's say the other party had Kansas's state minimum of $25,000 but my damages totaled $100,000. If I had a $100,000 uninsured/underinsured policy, their liability would pay the first $25,000 of damages and my uninsured/underinsured would pay the remaining $75,000.
In my opinion, uninsured/underinsured policies are great. Though I can't control the driving behavior of others and I can't control their willingness to buy an appropriate amount of insurance (more than $25,000), I can provide myself some level of financial protection through this type of policy. As I have found out the hard way, it is very easy to incur large medical bills and this policy can provide a lot of relief in case things go very wrong.
And depending on your state, you may really need that coverage. If the state you live in requires relatively low amounts of liability coverage, then you WILL NEED an uninsured/underinsured policy to cover the damages. Again, in my case, even though I spent less than four hours in the ER, I incurred a $20,000 medical bill from the hospital alone. And of course, there are many, many more bills to come from doctors, the follow-up visits, the surgery I ended up having, etc. In my opinion, if you state requires less than $50,000 liability coverage, you should plan on buying yourself an uninsured/underinsured policy.
And its cheap; really cheap. After I was hit my wife and I reviewed our coverage on our car and made some changes to our coverage. The extra uninsured/underinsured was something like an additional $50/year. Unlike liability which will be more expensive, for the extra protection it provides it is a bargain.
That's what I've learned about my insurance so far. My case is still pending and I am still learning; once I know more, I'm going to be sure to pass it along.
