I have to admit, many of the hundreds of automobile insurance commercials I have seen on TV lately are amusing. Geico, AIG direct, Progressive and a host of others are spending hundreds of millions of dollars creating and running attractive, humorous ads attempting to drive consumers to their toll free numbers or websites. As creative as they can be, the ads are very similar in that they are sending a message that automobile insurance is a commodity and the only differentiator between policies and carriers is price. Ouch!
Ok, it is always fun to be entertained, but the fun stops when one considers how dangerous the approach of “one size fits all” automobile insurance can be to your financial security. Let’s look at a great example of significant exposures that get lost in the message the advertising carriers are trying to sell you- uninsured and underinsured motorist coverage.
Uninsured and underinsured motorist insurance provides coverage for you and your family in the event you are involved in an accident with another party who either does not carry automobile liability insurance or carries low limits of automobile liability insurance.
Many states have enacted compulsory auto insurance laws, but even in these states up to 14% of all drivers do not carry insurance. For states without compulsory auto insurance laws, the percentage is as high as 1 in three drivers. In addition, since many of the direct carriers advertise price as the sole decision-making point, they purposely push lower limits in order to save money which creates far more underinsured motorists. Currently almost 60% of all bodily injury related accidents involve uninsured and underinsured motorists. It is easy to see that if you are involved in an accident, the chances of the other driver being uninsured or underinsured is highly probable. Covering yourself properly against other drivers is growing in importance every day!
Surprisingly, uninsured/underinsured motorist coverage is relatively inexpensive compared to other automobile coverages, running about $100 per vehicle per year for limits of $100,000 per person, $300,000 total per accident. Unfortunately, $100,000 does not go very far these days therefore we recommend increasing uninsured/underinsured motorist coverage to at least $1,000,000 per person and $1,000,000 per accident. Typically the most cost effective way to increase uninsured/underinsured motorist coverage to this limit is through an excess liability/umbrella policy. The annual additional cost runs between $50 to $100 per car.
There is no sense in trying to drive auto insurance savings by decreasing the uninsured/underinsured motorist limits. These are critical coverages that need to be written at the proper level. Don’t let any humorous commercial tell you differently…it’s no laughing matter.