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When people shop for car insurance, they’re often bewildered by the coverage options, limits, deductibles, exclusions and endorsements available. With all the choices out there, you might wonder if you’re designing a new kitchen, not just buying protection you hope you never need.
For wealthy individuals, there’s another layer of complexity to auto insurance: ensuring that you have enough coverage in place to protect your financial assets if an accident leads to a lawsuit. Here are some recommendations.
Nearly all states require you to have auto liability insurance, which covers injuries and damage in an accident caused by your vehicle. Buy enough liability coverage to cover your assets in the event you’re sued. Some insurance companies cap auto insurance liability at $300,000 or $500,000 per accident. Other companies, such as Chubb, offer higher limits. You can also add extra liability protection by buying an umbrella policy for $1 million or more.
Uninsured/underinsured motorist coverage
Uninsured and underinsured motorist coverage protects you in the event of an accident involving a driver who either has no insurance or has only the legal minimum level of coverage, which might not be enough to cover all costs from even a moderate accident. Nearly 13% of all U.S. motorists are uninsured, according to 2012 data compiled by the Insurance Information Institute; add in the many others who are underinsured, and it becomes clear why uninsured/underinsured coverage is important.
This type of auto insurance coverage generally pays for damage and bodily injuries to passengers in your vehicle from an accident caused by a driver who had no insurance or not enough coverage. Your health insurance should cover injuries you sustain. My recommendation is that you buy the same amount of uninsured motorist coverage as you have liability coverage.
Sometimes it’s more cost-effective to add uninsured motorist coverage to a personal umbrella policy, which steps in after you reach the liability limits of your regular insurance coverage. But many insurers don’t offer uninsured motorist coverage in an umbrella policy, so you may have to shop around.
When looking for an umbrella policy, start with your current auto insurer. If your insurer is highly rated by A.M. Best Co. and the company’s quote is competitive, you might be able to stop there.
An umbrella policy supplements your homeowners insurance and auto policies and is usually very affordable compared with other kinds of insurance. Consumer expert Clark Howard has called umbrella policies a “success tax.” If indeed it is a tax, it’s the cheapest one I have ever paid.
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