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The Danger of “Minimum Coverage”

woman reading insurance paper

by Adam Long, Sr. Trial Attorney

When people buy insurance for their vehicle, they tend to make a decision based on how much coverage they will need to replace their car if it gets totaled. As such, most people end up buying the minimum coverage required by the state. However, a recent development has occurred in litigation throughout the country that could leave you owing thousands if you choose a minimum policy.

In the State of Georgia, for example, the minimum insurance coverage required is $25,000. This limit has not been changed for 25 years. But, while the coverage limit has not changed, healthcare costs have exploded in the last quarter century. Despite this fact, lawmakers do not like to increase the limits because that requires an increase in premiums as well, never a popular political decision.

The dominoes started to fall on this new problem 15 years ago when Georgia joined many other states and changed how uninsured motorist coverage is applied with a new system called “stacking.” Stacking lets you add on your uninsured motorist coverage to the liability coverage of the person who hit you. (By the way, we strongly encourage everyone to select the stacking option when buying uninsured motorist coverage.)

Before the change, your underinsured motorist coverage was reduced by the coverage of the person who hit you.  So, if you had $50,000 of coverage and the other driver had $25,000, your insurance company would only add $25,000 to the coverage available to you from the other driver. Now, with stacking, they must add the entire $50,000.

This change has been popular because people feel like they are getting value for their premium payments, but it created a new problem. Instead of being encouraged to buy more expensive policies, people could get the same coverage for less, so they have not opted to buy more than the state minimum for uninsured coverage as well.

Because healthcare costs have exploded, $25,000 is often inadequate to pay for even minor claims. That fact coupled with stacking means insurers are starting to pay more claims on uninsured motorist policies. Also, believe it or not, how much insurers can increase rates is capped.  So, if insurers have to pay more claims, but they cannot charge more premium, where are they going to get that extra money? Surprise, surprise… from you.

More and more these days if you get into an accident that is your fault and you only have minimum coverage, the other driver’s insurance company will go after you directly if they have to make an uninsured motorist payment to their driver. This process is called subrogation. Even if you make the responsible decision to get coverage and pay your premiums, you may end up getting sued by the other driver’s insurance company and forced to pay thousands in legal fees and subrogation payments. Paying more premium now for a policy above minimum limits may hurt in the short term, but it could save you from a nightmare in the future.

CategoryPersonal Injury
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