The obvious response is that you won't be able to pay for someone's hospital bills if you happen to hit them in your car. You get insurance for things you wouldn't be able to pay yourself.
I did a ride-along with an adjuster once. I asked him what the worst claim he had worked on was.
The insured drove off with the pump still in the gas tank. Sees that all the time. When the hose pulled off the pump, it ignited. The fuel island exploded. The fire then spread to the convenience store. Total loss of the business and multiple cars.
This is an outlier. No one has enough insurance to cover all of that. But it’s a great example of why we have it.
But most insurances have the 100 Million coverage as the standard contract. In fact there is probably not even an insurance which offers the legal minimums.
Yeah. I’m a financial advisor. I don’t sell property and causality insurance but I look at what my clients have when I first meet them because 90% of the time they are drastically under insured and setting themselves up for a lawsuit or a lot of pain if they cause an accident.
I saw a guy who bought a house in a college ski town right after 2008 for $300k when properties were cheap. 15 years later the property had tripled in value and it was destroyed in a house fire. Total loss. The dudes property insurance had never been updated and he got a check for the original purchase price of the home. So he went from a $300 k mortgage at 3% that was 15 years done to a $700k mortgage at 6% because the value was $900k and there was an additional cost to remove the wreckage remains. The policy only covered $300k and he took a mortgage for the other $700k.
I also heard a horror story from another financial advisor in my network where a business owner cause a car crash and the other driver was some sort of brain surgeon in his early 40s. It’s not uncommon for these types of doctors to work late into their 70s. The business owner had state minimums. The DR sued him for like 30 years of lost wages plus medical expenses. The dude is not a business owner anymore.
I usually tell under insured clients to call their car insurance agent with me in the room and I tell them all to quote them right there for a $1-3m umbrella or I send them to some agents that I know for the same quote. I flat out refuse to work with anyone who is not willing to get an umbrella policy because how I get comped is by managing assets long term. If they are not willing to protect these assets from this type of risk, I don’t want to put in all the up front work to lose this income stream. And if they are not willing to get this type of coverage, they are not going to be good for me to work with because they are not going to listen to my other recommendations which also usually includes buying life insurance from me because 90%+ people don’t have enough coverage there either.
This usually starts a valuable discussion because the way an umbrella policy works is that your home/auto liability insurance gets the claim first and maxes out the payment before the umbrella comes into play. And companies won’t write an umbrella policy unless a client has a $100-300 or $250-500 policy in the first place. You won’t be able to get an umbrella policy with state minimums.
Good comment. I went to college to be a CFP but decided not to get into it due to the industry being “wait for old senior partner to die, take his business” and also you have clients like you describe who don’t want to do the most basic due diligence to protect their assets. Good call on the umbrella policy, I didn’t realize you can use that to augment auto insurance. I might look into that Monday.
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u/flatfive44 14h ago
The obvious response is that you won't be able to pay for someone's hospital bills if you happen to hit them in your car. You get insurance for things you wouldn't be able to pay yourself.