How Much Car Insurance Do I Need?

How much car insurance do you actually need? What do all of the different coverages mean? Bodily injury or personal injury, what's the difference?

This is a pretty boring video that we tried to make better by adding cute kids. It sort of worked...

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[BTBinc]

Here's some professional advise. I am licensed in CA and I train Farmers Insurance Agents professionally for my career.

The person who said he doesn't purchase Uninsured Motorists Bodily Injury coverage is giving very bad advise. It's the most vital part of your insurance package. Second is your liability.

As you've stated, not purchasing comprehensive or collision may cause you financial discomfort for a while, but it's not going to cause financial ruin.

Liability and Uninsured/Under-Insured Motorist coverage is extremely important. First of all, as good people, we should provide adequate coverage to pay for a person's injuries and lost wages if our inattention caused them harm. I'd feel horible if I accidentally injured someone seriously and it caused them to lose everything they've worked for, possibly their family's home.

In most states, if you do not have enough insurance or assets to liquidate to pay for a person's medical expenses, lost wages, pain and suffering, then they can garnish your wages. In California, it's up to 25% of your households annual income. If you think you can't afford an extra 10.00 a month for higher coverages then you can't afford to lose 25% of your wages either. Where I live, the median annual income per household is 50k. 50, 000 x .25(25%) ÷ 12 months= $1, 042 per month.

With the average judgment involving a vehicle claim in the United States being close to $300, 000 per judgment, 100/300 bodily injury isn't enough. 20% of all judgments are over 1Million.

People often mistake having liability limits equal to their assets. When in reality, your assets have zero to do with the calculation. A person who rents can cause the same injury as a homeowner can. In most states, both could lose a large % of their annual income. People of all financial earning power value their lively hood. I suggest purchasing enough liability insurance to cover the average judgment and an umbrella that will cover the 20% of judgments that are 1Million +.

Now, Uninsured / Under-Insured Motorist coverage.

We know most people do not have very good coverage. The most any of you have already stated you have is 100/300 liability so that means the max you have in Uninsured / Under-Insured Motorist is 100/300. So, imagine you leave in your car tomorrow heading out to do some errands when someone texting on their phone runs a red light and seriously injures you. You're rushed to the hospital suffering from head trauma. The Dr tells your spouse that you'll recover but you'll lose some cognitive skills and most likely never work again.

Through all of this, your spouse is dealing with insurance and finds out that the driver was uninsured. You only had 100, 000 because you were the only person injured. Now what? What do you do about all of the medical bills? What do you do to replace your income so your family doesn't lose the home you've provided for them. Sure, you'll be ok because at least you're alive and get to see your kids grow up. You're Blessed. I agree. But you don't have to have it play out that way.

Instead of basing your insurance on assets you currently have, base your Uninsured / Under-Insured Motorist on your household's annual income x years left until retirement. The most cost effective way to cover yourself for this is to purchase high enough auto limits so you can purchase an Umbrella Policy from Farmers Insurance. I say Farmers because in most states, we attach the 1 Million dollars to your Uninsured / Under-Insured Motorist coverage. I'm not aware of any other company that does.

The minimum coverages I suggest purchasing is as follows.

250/500/100 Liability
250/500 UMBI / UMBI
1 Million Umbrella attached to your UMBI

This would cover your for the average auto liability judgment in the United States and also cover you for the 20% of the time the judgement is over 1 Million.

This would also give you 1, 250, 000.00 coverage for your family to pay for medical, lost wages and pain and suffering if you are injured.

Remember, if someone injures you and neither of you are covered correctly, there's not going to be any money. No lawyer will take a case when there's no money to gain. Set your insurance up to take care of other people correctly and make sure you do the same for yourself. If Farmers pays you, they have lawyers on staff to get their money back from the person who caused it so you don't have to worry about their ability to pay.

As a person example, for wife and I to raise our insurance from California Minimum Coverage 15/30/5 up to our 1 Million Single Limit auto policy cost us 30.00 extra a month. Our 1 Million Umbrella attached to our Uninsured / Under-Insured cost us 240.00 a year. So we pay an extra 50.00 a month but we don't have to worry about what if.

I really hope this helps at least 1 person. If so, my time was well spent.

Enjoy a Blessed and safe 2016. 😎

Mike Roland

Agency Development Manager
Personal Insurance Consultant
Farmers Insurance District Office
Bakersfield, California

[JohnDarr]

I love the fact that you reviewed your insurance and shot this video trying to help people when buying insurance! As an insurance agent in Florida for 25 years, I would strongly suggest that you review uninsured motorists coverage as it is the MOST IMPORTANT COVERAGE ON YOUR POLICY!!! Studies show that 1 out of every 4 cars on the road have NO insurance even though it is REQUIRED BY LAW in Florida!! I can't stress enough how you need to purchase STACKED and MATCHED uninsured motorist limits. Thanks again for making the video and feel free to reach out to me with any questions you might have.

[MelodicMotives]

Determining how much car insurance you need can be tricky. You’ll need to know how much coverage the law requires you to have while ensuring you have adequate coverage to protect your assets and yourself. You also need to find the right plan to fit your budget.

[dhawkinsable]

From my 2010 experience of having to sue a GEICO customer despite him running a stop sign, being drunk out of his mind, and hitting my car with so much force (no braking) he broke the rear axle, accordioned the trunk, pushed the car almost 100', and put a groove in the road from the broken axle...insurance companies are going to fight for every last dollar.  In my case, its pretty much a slam-dunk case (though GEICO tried to get at least 5% blame on me), they would not settle.  Only after I hired an attorney were they immediately going to settle, but then I was forfeiting 33%; and we were forced to sue to make me whole (just to get back to even for $$ & lost time from work).  
Ridiculous.  
I share this story for your subscribers because doing an asset search is VERY easy for a litigating attorney.  Once you've saved a large amount of money, you are a target; regardless of how much insurance you have.  Why?  Because a good attorney is going to sue for maximum insurance, plus criminal restitution, plus pain & suffering, plus, plus, plus. Do I need to go on?  Also, consider 1 fender-bender causing a several car pile-up; or 1 serious or permanent injury. Your life savings and everything you've worked for could be gone because of that 1 accident (and we're not touching on paying attorney fees for a criminal case like vehicular manslaughter or negligent homicide).  

Savers with high amounts need to structure those savings into protected or unlisted classes.  This can differ depending on the state, but generally protected are: retirement/pension plans, residing home, and basic living wages.  I would also add that trusts (separate legal entities) become a great idea; as well as LLCs owning properties, other vehicles, and toys.  Unregistered/unlisted property is another good saving vehicle, like; gold/silver coins, and cash (on hand).

[dkennell]

Thanks for rehearsing and keeping it tight. Great vid.

[mickcv]

As an insurance expert (and pretty good with money) you guys are right and glad you didn’t run with the no insurance idea. Bodily injury and Property damage can bankrupt you easily unless you have beaux coupe bucks. Also, good job on knowing that if you can easily afford to replace your car after an accident then why pay insurance?? All they do is calculate your risk and charge you a little more so it’s only needed for people without the cash to fix the car...this is triple true of warranties, only buy them if the cost of a breakdown is higher than you have in savings

[TateBreswick]

Would you share the spreadsheet you had from this video?
Google sheets perhaps?

[thefuture]

What should i get if i am trying to buy a used $10k car/ want full coverage for medical/body injury/health insurance plus covers other peoples car but one that doesn't cover my car?

[jeaok]

For some reason Geico always gives me the highest quotes, and I shop for quotes every 6 months. So I find it interesting that you're getting insurance from them that cheap.

[jkopvo]

Hi guys,

Good topic.  When I was in college (many years ago), I remember a guest lecturer talking about insurance, and I have, for the most part, tried to follow his advice, which in a nutshell, is as follows:

Insurance companies make money, so where the potential risk is not catastrophic (e.g., collision insurance), you should act as your own insurance company.  When the potential risk would wipe you out, you should pay a larger insurance company (e.g., Geico) to take that risk.

Thus, like you, I purchase high liability limits and don't purchase collision or uninsured motorist insurance.  I have made an exception and purchase comprehensive (with a deductible), mainly because in Florida, any windshield damage is covered without having to pay the deductible and, believe it or not, twice I have cracked windshields putting on a Club!?!  Yes, they replaced the windshield both times (at no cost to me, but maybe my rates went up!)

I want to note also that if you have $100K in savings and a $100K liability policy, that does not necessarily protect your savings.  It depends on the amount of damage.  If you cause $200K of damage, they will first collect the $100K from Geico, then take your $100K of savings.  

One little issue I have had with  not having collision insurance is that if a friend wants to borrow my vehicle, I am reluctant to loan it to them, because if they get in an accident with my car, my friend may not have sufficient savings to repair/replace my vehicle (since I don't have collision insurance).  Any thoughts on this?

[naegleriafowleri]

Too many peoole focus on getting the cheapest quote anywhere that's all they care, but many of those cheap insurance like geico and so many others less known companies are known to deny claim or screw you in some way, that's why they can offer cheaper quotes.

[debbiebeadle]

Hi Mike & Lauren,
I just wanted to say good job!  I am a licensed agent in Lufkin, Texas.  I have been an agent for almost 20 years now, and started my own agency about 3 months ago.  I will say one of my biggest frustration in my career (is not "not closing my prospect"), but how many people don't understand how their coverages work.  So for instance, I love how you broke down the difference between the minimum limits of your state and showed how much it would cost to increase.  I cannot tell you how many times I have told people if they have 1 claim it could ruin their entire lives if they are not insured properly.  I'm going to share your video on our social media accounts.

Lauren,
You made me laugh when you paused and said, this is so boring.  Insurance is boring and complicated....but its so important to understand and I believe that you should have a good agent and talk to that agent at least once a year, if not twice a year about your personal life so your agent can help you determine the proper amount of coverage to suit your needs.

[kermuriev]

Just a quick follow-up -- if you are responsible for injuring someone, you might get sued and in that case they won't be coming after you for a few hundred thousand. They'll want a lot more, so a 100-300K limit will still not be enough. Insurance companies are now offering very reasonable umbrella policies for excess liability. As an example, you could find a 1M in coverage beyond your policy limits for just a $100 annual premium.

[muhammadshahzad]

Hii i m new young driver lokking for cheap insurance jst liability.. can u recommend me which insurance company is cheapest and how much liability would be good

[danfor]

Do you know if retirement accounts have special protection if someone were to come after your asses/assets?

[andrewlin]

Why do so many people have so little coverage?

[TheUsualSuspekt]

I live in Florida. You twisted my arm into a reality check. 

[johannbeckham]

Would you be able to share the excel file you showed in this video?

[ThePeterDislikeShow]

You should also consider a $1 million personal umbrella if I believe your other videos about your investments.

[grege.]

Hey Guys! Happy Thanksgiving! This is a good topic to discuss (boring but good :). We have recently switched our coverage limits since we sold our more expensive vehicle. We dropped collision coverage since we can pay to replace the vehicle out of pocket if needed. Our liability coverage is 100/300/50 (per person/ per accident/ prop damage per accident), medical payments are 25K/person, uninsured is 100/300/10. Any suggestions? Thanks!