All states require automobile owners to carry a certain minimal level of insurance. Many times, in order to cut costs, owners will decline other coverages available under their insurance policy. By not considering the risks of having inadequate insurance coverage for their vehicle, owners often expose themselves to significant hardship in the event that they are involved in an accident.
Financial Responsibility Laws and Liability Insurance
Most states require by law that all motor vehicles have a certain minimum amount of insurance coverage. The purpose of these laws, typically known as “financial responsibility laws,” is to protect persons or property that a driver might injure or damage in the course of operating his or her vehicle. The required amounts are usually low in relation to the risk covered, $25,000 in Arkansas for instance, and are used to pay for legal damages caused by a driver who negligently causes an accident. This type of insurance is called “liability” coverage.
With liability insurance, if a driver gets sued as a result of an accident he causes, the insurance company will pay for the injured party’s damages up to the required amount of coverage. Additionally, legal fees incurred by the at fault driver if he or she is sued are usually covered as well, and are typically not deducted from the minimum coverage amount. Financial responsibility laws reflect good public policy, in that they serve to protect individuals who both cause accidents and are injured in accidents, and they demonstrate a key benefit of automobile insurance.
Important Optional Coverages in Auto Policies
Unfortunately, because drivers are required to purchase this insurance, many view insurance as an undesirable cost associated with owning a vehicle. For this reason, among others, many drivers will seek to minimize insurance costs, but doing so exposes them and their family to a risk of financial hardship in cases where they are injured through the fault of another driver in an accident.
Two of the most important optional coverages in auto policies are 1) personal injury protection (also known as PIP or “med pay”) coverage, and 2) uninsured/underinsured (also known as UM/UIM) coverage. Many states recognize the importance of these coverages and require that auto policies include them unless the owner, in writing, chooses to decline the coverages. Nevertheless, and unlike minimal liability coverage, the coverages are optional. Typically the owner will make his or her choice on whether to decline those coverages, during the process of filling out their application for insurance. Not having those coverages does result in savings in the premium costs for the insurance, and if that is the owner’s primary consideration, it is easy for an insurance agent to assist the owner in declining the coverage.
However, as insurance agents are generally not responsible for educating their customers about their policies, as discussed here, many times the risks of declining those coverages is not adequately discussed with the owner.
This is unfortunate because the costs of these coverages are relatively low in comparison to the risks they cover. For instance, for my vehicle, which is late model and has high liability limits (that is, the total amount of liability coverage available to cover damages in the event that I cause an accident resulting in injury to another), the monthly cost of my PIP coverage is just over $1, and the monthly cost of my combined UM/UIM coverage is just under $10.
PIP and UM/UIM Coverage and the Benefits of These Coverages
PIP coverage is “no-fault” insurance that pays a certain amount toward medical expenses, lost wages, and even a death benefit in the event of a fatal accident. The limits of these coverages is typically low (usually $5000 for both medical expenses and the death benefit and around $140 a week for lost wages limited to a certain number of weeks), but a driver can claim these benefits even if he or she was a fault for causing an accident that resulted in their own injury. Additionally, these benefits are often available to any party injured in the accident, regardless of that party’s fault.
The primary importance of PIP coverage stems from the fact that, as a no fault benefit, it is available even to the party at fault for causing an accident and who would not otherwise be eligible to pursue liability coverage (which only protects a party not at fault). If a driver does not have health insurance, or has a high deductible health care plan, PIP coverage can serve to offset medical expenses that otherwise would be out-of-pocket. Additionally, many states do not allow the insurance company to recover PIP payments from settlements made the liability policy for an at-fault driver, so for an injured party not at fault in causing the accident, PIP coverage can increase the amount that goes into his or her pocket in the event that a claim is made against the liability coverage of the at-fault driver.
UM/UIM coverage allows for a injured, not at-fault party to receive additional payments for damages that exceed the liability limits of the at-fault driver (for UIM, or underinsured coverage), or to receive payments in the event that the other driver had no insurance (for UM, or uninsured coverage). Although driving without the minimal liability coverage is unlawful, many drivers engage in the practice. Additionally, many drivers choose to carry only the minimal liability coverage required by their state, and those amounts are often insufficient to fully compensate an injured party in the event of a severe accident where extended medical treatment is required.
Accordingly, the primary importance of UM/UIM coverage is to protect an injured driver from the event where the at-fault driver either has no liability insurance or does not have enough to cover the extent of the injuries he or she has caused. It is assumed by insurance companies, as well as attorneys representing injured parties, that an at-fault driver will have insufficient personal assets to cover the damages he or she causes, or that any judgment awarded against that diver can be discharged in a bankruptcy proceeding. Insurance coverage is often the only way that an injured party can receive compensation for his or her injuries, and UM/UIM coverage helps increase the amount of insurance available to an injured party.
Carefully Consider the Risks of Declining PIP and UM/UIM Coverage
While cost savings is a valid concern for many auto owners, opting out of PIP and UM/UIM coverage is not advisable. Many people do not realize the importance of their insurance coverages until they need it, and in our practice representing injured parties we have seen many instances where the lack of PIP and UM/UIM coverage has significantly reduced the amount of compensation to which our clients would otherwise have received. If you are unsure whether your auto policy has these coverages, or if it does not, we recommend that you carefully consider the risks of not having those coverages and contact your insurance agent for a quote on the cost of adding them. You may find that the added costs are well worth the added protection that these coverages provide (and may be offset by other cost saving options available to you under your policy).
Have Questions? We Can Help
Finally, if you have been injured in an accident and need assistance with your auto insurance claim, or if you would like an attorney to review your policy and advise you on the coverage you have, please contact our firm. We handle injury cases on a contingency fee basis (meaning that we take no fee, and you are not required to pay any costs, unless we obtain a recovery on your behalf), and fees for our insurance policy reviews are flat and are typically in line with the premium cost for you policy (meaning that we will quote you a set fee before we review your policy, and that the smaller the coverages you have, the less we will charge to review the policy). All initial consultations are at no cost to you.