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Why cheap car insurance hurts you in the long run

Each month, we take stock of the most popular posts on our blog. Invariably, one is more popular than all the others: “Here’s why your car insurance is going up in 2016.”

Granted we’re not living in 2016 anymore, but based on the evidence we can assume that people remain interested because the cost of auto insurance continues to rise each year.

Unfortunately, that means consumers make short-term decisions to save money, and that’s what brings us to the issue of substandard insurance policies.

We’ve written quite a bit about state mandates, which requires all drivers in Illinois to carry minimum liability coverage of $25,000. Substandard insurance is primarily defined as a policy that offers the bare minimum at relatively low premiums. The problem with that, however, is that substandard policies are designed to make you believe the minimum is enough to protect you when it isn’t.

One reason is bodily injury, which is practically impossible to predict. Depending on the severity of the injury, you could be looking at hundreds of thousands of dollars in medical bills, where $25,000 is barely a drop in the bucket. We’re talking the cost of an ambulance, emergency surgery, a long hospital stay to recover from injuries. Those costs can be significant and financially paralyzing.

Another reason is related to your long-term health, such as your ability to perform a job, whether you’ve lost work, whether you actively participate in the community, and whether you suffer from a terminal injury.

In situations like the one above, insurance is about the only thing protecting you and others from dire situations, both health-wise and financially. You’re also making it easy for insurance companies to simply walk away from the situation when it’s no longer a legal responsibility.

Take this example. A man with a substandard policy crashes into a minivan hauling three kids. Two of them become seriously injured. As the at-fault driver with the substandard policy, your insurance is responsible for picking up the medical bills. But based on your policy, only $25,000 is collectable. Now let’s imagine that the kids’ medical bills cost upwards of $200,000. If attorneys get involved, you could be responsible for the $175,000 difference (and possibly much more) depending on the circumstances of the crash.

Let’s say you lose that lawsuit. Then it’s a matter of duking it out with your insurance company to make up for the difference, which means you’re fighting two battles, both of which you could end up losing. Badly. The above is just one example of the pitfalls of opting for substandard insurance policy.

People often ask us what types of insurance policies we recommend and whether it’s enough to protect them in times of crisis. It’s hard to give a good answer because every person is working under different circumstances. But what we often recommend is that drivers take time to look at their policy, understand it and ask questions. Discovering where you might be vulnerable is worth the effort, as is the protection that comes with a quality insurance policy.

Understanding your insurance policy

Associate Attorney Tiffannie Kennedy breaks it down

Insurance can be confusing, hard to navigate, and increasingly frustrating when you don’t know the terminology. Here’s an example: Illinois law requires all drivers to carry a minimum of $25,000 in liability coverage for bodily injury per person; $50,000 for bodily injury per accident; and $20,000 for property damage. Illinois Law further requires drivers to purchase Uninsured Motorist Coverage, with limits equal to Bodily Injury Liability Coverage limits, unless you select lower limits in writing. The minimum Uninsured Motorists Coverage limits allowed by law are $20,000 per person and $40,000 per accident.

So, let’s break that down based on the following scenario: Mom, Dad and their two children are heading out of town for the weekend. A distracted driver doesn’t see that traffic has suddenly stopped and rear-ends the new family car. The crash causes extensive property damage, and Mom is suddenly rushed to the hospital by ambulance. Dad and the two kids appear to be in good shape. But once the adrenalin subsides, Dad experiences back and neck pain, which requires two steroid injections and six months of physical therapy. When all is said and done, Mom’s medical bills are $15,000 and Dads are $30,000. The family vehicle is a complete loss.

Assuming the insurance company accepts fault, the distracted driver’s minimum insurance policy should cover all of Mom’s medical bills and $25,000 of Dad’s medical bills. But there’s $50,000 total—and the medical bills in this scenario total $45,000. So why doesn’t the at-fault driver’s insurance cover everything? Because the policy only pays $25,000 for each person, meaning Dad needs to find a way to account for the other $5,000. As for that new family vehicle? While the outstanding loan on the car is $29,000, the distracted driver’s policy in this case is only paying $20,000, meaning Mom and Dad are on the hook for the additional $9,000; add that to unpaid medical bills and the victims here now owe $14,000!

Let’s change this scenario a bit and pretend the distracted driver was in between jobs and decided not to pay her insurance premium one month, making her an uninsured driver. Meanwhile, Mom and Dad are putting two kids through school and can only afford the cheapest insurance policy—the minimum required by law. So, since the driver has no insurance, the entire financial loss falls to Mom and Dad’s insurance company. Mom’s medical bills still get paid, but Dad still has that extra $5,000 in excess medical bills over the policy limit of $20,000, and the totaled car isn’t being covered by anyone’s insurance policy.

Let’s change the scenario one last time. This time, Mom, Dad and our distracted driver all have the minimum required coverage, but Mom and Dad have elected to purchase underinsured insurance coverage (something not required by law). Mom and Dad’s underinsured policy limits are $50,000 in liability coverage for bodily injury per person; $100,000 for bodily injury per accident; and $25,000 for property damage. In Illinois, underinsured coverage must be higher than the at-fault driver’s basic coverage for it to apply. In this last scenario, the at-fault driver’s insurance policy would pay for all of Mom’s bills, most of Dad’s bills and part of the vehicle damage, however the underinsured coverage would kick in and pay for the rest.

Based on the hypothetical situations above, you can see why attorneys are important in cases such as this. Insurance can be a minefield of complex contractual jargon, some of which the insurance companies don’t fully understand. It gets even more complex when injuries are involved, some of which can be chronic and even terminal. You need someone to protect your interests, and that’s exactly what our attorneys here at Levinson and Stefani do for you. Have insurance questions? Reach out to our office, we’re here to help.

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