NOTE: The following article by JS contributor, David Thompson, CPCU, AAI, API, CRIS, should be read by every Florida driver and certainly by every Florida insurance agent. David was asked, in his opinion, what coverage was the most critical for any driver to purchase.
This was his answer!
One of the most important coverages to carry on a Personal Auto Policy is Uninsured Motorist (UM) coverage. Unfortunately, some people think of this as, “Buying insurance for other people.”
That is certainly not the case.
People who know me, know that I am passionate about UM. In fact, the license tag on my car is: STACK UM.
In my 35 years in the insurance industry, I have seen scores (if not hundreds) of consumers left “holding the bag” on financial losses because they had no UM coverage. The worst case was back in my agency days when I wrote coverage for friends at church. Their policy had a very significant amount of UM coverage. They left my agency for another agency across town to “save money.” That agent provided only the absolute minimum amount of UM coverage. Within six months, one of their children was tragically killed by a drunk driver. Certainly, all the money in the world would not bring that child back to life, but the point is clear. Suppose, however, that it was the husband or wife who was killed; that is an entirely different issue. That tragic event was what totally changed my view of UM. I will skip on other things in life, long before I skimp on insurance, especially UM.
First Party Coverage
UM is referred to as a “first party coverage.” In the insurance industry, that means that after a claim the money is paid to the policyholder. It’s much like a homeowners policy when the structure is damaged by fire; the insurance company pays the funds to the policyholder. The summary of UM is that it pays the policyholder (including the resident spouse and resident family members…such as children) if they are injured in an automobile accident by an at-fault driver who has no liability insurance or liability insurance that is below the amount a jury might award to the injured party. In general, UM pays for injuries sustained by those referenced above in any automobile and as a pedestrian struck by an automobile anywhere in the United States, Canada, and Puerto Rico. Of course, each case is different and policies vary so make sure to read the specific policy.
Many have a misconception that UM only covers medical bill; nothing is further from the truth. In fact, many articles on the Internet (and unfortunately, some insurance agents) often express, “You don’t need UM because you have health insurance, Medicare, Tricare, etc.”
UM pays “compensatory damages.” To summarize, that is whatever a jury might award an injured party. Consider, for example, a married couple (both of whom work) with some children. Suppose one spouse were injured badly (paralyzed) and could not work for an extended period of time… or maybe forever. Based on the facts, a hypothetical jury might award:
- $200,000 for past medical bills
- $400,000 for future medical bills
- $100,000 in past lost wages
- $500,00 in lost future wages
- $350,000 for “pain and suffering”
- $100,000 for services such as lawn care, childcare, pool care, etc.
- $5,000 for future wheelchairs
- 75,000 to buy vans to transport the wheelchair
- $20,000 to retrofit the house for wheelchairs
- $75,000 for the loss of the “family purpose doctrine”
- $100,000 for the inability to play tennis
In the above example, very little of what is referenced above is covered by health insurance, thus the need for UM.
Any insurance professional who suggests to a customer that they don’t need UM (for any reason they cite) should become more educated on the true benefits of UM.
UM Is Critical
So, why is UM such an important coverage? The answer is, “Because a lot of vehicle owners carry no, or very little, “bodily injury liability” coverage. That is the coverage to respond when an at-fault party injures someone. In 2015, the Insurance Information Institute (iii.org) estimated that about 14 percent of the autos in the United States had no insurance at all. In Florida, that was a whopping 26.7 percent! At about the same time, the Florida Office of Insurance Regulation (floir.com) had “hard data” showing that state-wide about 51 percent of the cars that had any insurance, carried bodily injury liability of $25,000 or less. Those numbers are even higher in south Florida, 62 percent in Miami Dade County.
Consider a situation of a working couple with a few children. One spouse was severely injured in a not-at-fault accident and could not work for an extended period of time…or perhaps forever. Or, what if that spouse were tragically killed in the accident. How long would $25,000 last the family? This points out the critical need to carry maximum limits of UM coverage.
UM coverage comes in two versions, “stacked” and “non-stacked.” With stacked UM, the limits of coverage is multiplied by the number of vehicles. For example, with three cars insured and a $100,000 stacked UM limit, the policy provides $300,000 of coverage. With non-stacked UM, only $100,000 is available. Stacked UM, however, offers even better coverage because there are numerous situations where stacked UM would respond, but non-sacked would not. For example, assume the customer owned only one automobile in Florida and had $100,000 of stacked UM on that policy. They also owned a vehicle in another state insured by a different company, and they rejected UM on that policy. If the customer were in that other vehicle and injured by an at-fault party, the stacked UM would respond, but the non-stacked UM would not. The absolute best protection is to buy stacked UM equal to the bodily injury limits, regardless of the number of vehicles insured.
Don’t Reject UM, STACK IT!
Many people reject UM because, according to them, “It is expensive.” Let’s put into a different perspective. Many people will stop at their favorite breakfast spot almost daily for their morning beverage of choice and perhaps a food item. Without even thinking, they spend $5 to $7 per day there; that adds up $1,500 a year. Or some will get a manicure or pedicure every few weeks and spend $75 there; that can easily cost over $1,000 a year. Or people who smoke a pack of cigarettes a day at about $6.00 a day; that’s a whopping $2,000 a year. These same people think nothing of spending that much money, yet they forego UM coverage and put themselves and their family at the risk of great financial loss after a traffic accident.
The Florida Department of Highway Safety and Motor Vehicles reported that in 2019 there were 401,000 automobile accidents in Florida. There were 3,185 fatalities, and 254,000 injuries.
Considering those accident numbers and the percentage of automobiles have no or very little liability insurance, the decision is easy: forego that breakfast stop a few times a month and use that to buy UM coverage to protect you and your family.
As a consumer, you should always request that your agent provide the maximum UM limit available, written on a stacked basis. If you carry a personal umbrella, that policy should include UM.
If you are a retail insurance agent, your “invariable practice” should be to quote the maximum UM limit available. Explain the coverage, the need for it, and use the “dollar or so per day” approach to convince the customer of the need.
Hopefully, you will never need the coverage. In an accident with injuries you want UM to be there.
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