There is no need to purchase more car insurance than necessary. Both general liability and automobile coverage are expensive, especially when you consider the cost of both. I get asked often “How much coverage should i buy?” I am often asked “How much coverage should I purchase?” or “What amount of coverage is sufficient?” Although I cannot answer this question, I can offer suggestions and ask questions that may help you make a decision.
This brief explanation will help you understand how car insurance claims work. An auto accident is a common occurrence. Here’s an example of what happens most often. Contractors purchase a commercial auto policy that covers $500,000 in bodily injury and property damage. Your driver hits another vehicle and causes damage to the other car. Your driver is clearly at fault for the accident. Your insurance company is limited to paying $500,000 for all injuries and damages. An adjuster is assigned to evaluate the incident and determine the extent of liability. The reserve is the maximum amount they think the insurance company will pay.
Insurers are obligated until you have a verdict or released from any future liability. There are several options. You have enough coverage. If the damages exceed the policy limit, settlement can be reached. Your company and you are exempt from future liability. The damages are not within the policy limit, and the insurance company provides policy limits. You have no assets to pursue the claimant. After evaluating the situation, the claimant determines that it is in his best interests to accept the offer and release him.
Third, the damage is beyond the policy limits. The claimant refuses to accept the insurance company’s offer of policy limit. A settlement must be reached by the court system. If you are not liable for any future damages, and a judgment is entered within your policy limits, the insurance company will pay you. If the judgment is deemed to be beyond policy limits, the insurance company will pay policy limits. You would then be able to defend yourself and pay any monies that are not covered by the insurance.
It is important to avoid any judgment that awards more than your policy limits. How much insurance is sufficient? To help you answer this question, consider the following:
Which type of legal entity are you protecting? Individual ownership or a corporation? Keep in mind that corporate veil erosion continues. What kind of work do you do? Are there any potential hazards to the client’s property or their personal belongings? How much are the properties that you’re working on? Is it $100,000 homes or $1,000,000? How disruptive could your employees be? What would that mean for your clients in terms of lost business? Are you liable for the lost business? How many employees do your company have? What number of vehicles are you driving at any one time? Accidents are more likely when there are more cars and workers on the roads. What are the liability limits in your contracts? What is your net worth as an individual? What is the corporate worth? You will need sufficient coverage to ensure that any judgment against you doesn’t wipe out your hard-earned assets.
These questions are a good starting point. Next, purchase the best coverage you can afford. For as little as several hundred dollars, you can get twice the coverage that you have or an additional million dollars through an umbrella. You might be asking, “How much would this additional coverage cost me?” In most cases, my answer is “You don’t want to know.”
