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Can an accident with an uninsured motorist destroy your financial well-being?

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When you’re choosing an appropriate liability limit to protect your assets against lawsuits, you’ll typically take into consideration your net worth, risk profile, risk tolerance and value of limit for the premium.

So, why don’t you use the same methodical approach for determining the limit you should purchase for uninsured motorist liability?

What is uninsured/underinsured motorist liability?
Uninsured/underinsured motorist liability coverage provides compensatory damages an insured is legally entitled to recover from the owner or operator of an uninsured or underinsured motor vehicle because of bodily injury or property damage.

Damages may include expenses resulting from the injury, such as: lost wages, medical expenses, pain and suffering, emotional distress, loss of future earning capacity, funeral expenses, damages for care and lost services.

Why is it important?

According to the National Association of Insurance Commissioners, the Insurance Research Council and the California Department of Insurance:

  • 12.6 percent of drivers nationally are uninsured. Individual states’ rates range as high as 25.9 percent, with rates in metropolitan areas substantially higher than the national average.
  • $28 billion in annual auto damage goes unpaid due to uninsured motorists.

And these statistics don’t even include underinsured motorists—other drivers whose limits are inadequate to compensate drivers for their injuries and property damage. Imagine what could happen if you were in an accident andthe other driver was uninsured. The following scenario is a re-created example of how an uninsured motorist can threaten your financial well-being.

Uninsured/underinsured motorist liability coverage is an often-overlooked area of protection.

The 35-year-old executive.
Jane is a tech company executive and mother of two who earns $250,000 a year. Jane is broadsided by a driver who carries California state minimum limits of $15,000 bodily injury per person, $30,000 bodily injury per accident and $5,000 property damage. Her vehicle is totaled; she requires a long hospital stay and physical therapy; and she’ll suffer long-term disability.

During her rehabilitation, Jane loses her job. Her short-term disability coverage from her employer runs out and, unfortunately, she’s failed to purchase supplemental disability or long-term care coverage. Her health insurance covers the hospital stay, but not the rehabilitation and physical therapy.

Jane further needs to hire in-home care for herself and her young children. Her personal program includes an umbrella policy for $5 million in liability coverage, but doesn’t include uninsured motorist liability coverage. Her auto policy provides $250,000 per person/$500,000 per accident.

Jane sues the other driver and receives $2 million for current and future medical costs, lost wages, loss of future earning capacity, in-home assistance, pain and suffering and emotional distress. The other driver’s insurer will pay $15,000, and her own auto insurer will pay her $250,000 of the $2 million award under her underinsured motorist liability coverage. The health insurer will seek reimbursement against the $265,000 in collectable coverage. Underinsured/uninsured motorist coverage also protects you as a passenger in third party vehicles or if you are struck as a pedestrian.

The message: Get protected.
Don’t let such outcomes happen to you. Uninsured/underinsured motorist liability coverage is an often-overlooked area of protection in your financial-planning strategy. For high net worth clients, limits up to $10 million may be available.

Accidents happen. At NFP, as insurance and risk management professionals, we help you identify, evaluate and address areas of risk so that should an accident happen to you, it won’t derail your wealth preservation strategy.

Insurance services provided through NFP Property & Casualty Services, Inc., doing business in California as NFP Property & Casualty Insurance Services, Inc., License # 0F1571.

This article was originally published in the February–April 2017 issue of Worth.

Risk & Insurance

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