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Insurance for Unexpected Events: How covered are you?

My car was recently stolen. In the moments after searching the parking lot and accepting that this was really happening to me the voice inside my head told me to relax, this is why I have insurance. A $500 comprehensive deductible and this will all be taken care of. Five days later, my friend spotted the car on Minnesota Drive, called the police, and relayed his location until five cruisers with lights whirling pulled my car over at gun point in a very NYPD Blues moment. The real cost of replacing 2 windows, cleaning a car filled with needles and heroine, lost contents, wages and driving a car with a peculiar odor? About $2,500 – five times more than I expected. This sparked me to call two friends with much more serious car events than mine to get a sense of the financial impact. When we talk about your emergency fund in your financial plan, do we have a clear picture of the real cost of an emergency and your ability to cover it? Are your coverages adequate for the risk you are exposed to?

Friend one was driving down a two-lane road when a car, waiting to turn in the opposing lane, was rear-ended and pushed into her front end as she passed. A writer by profession, she was between books and had raised her deductibles and dropped rental insurance to save money. The at-fault driver’s insurance paid her $60,000 in medical bills after months of fronting much money and being sent to collections by the doctors. Her own insurance eventually gave her $7,000 to replace her truck. Two months later, she scored lower in cognitive ability than her parent with advanced dementia. One year later, a neurologist cleared her of the effects of her head injury. She lost a ghost writing opportunity and had to continue her manual labor job to stay above water while she recovered. Fifteen months after the accident she got an additional settlement for roughly one year’s wages. We recommend 3 to 6 months of expenses in an emergency fund but this friend went through that reserve and had to tap her retirement savings to survive. This is not our average AWMI client but could this be your child or grandchild? Are you the pocket that opens when crisis hits? Have you talked to the next generation about their coverage? What would your disability coverage have paid in this situation?

Friend two had a teen-aged daughter driving a friend’s uninsured vehicle when she caused an accident totaling the car she hit and the car she was driving. My friend had the required uninsured motorist insurance and her $500 deductible covered the replacement of both cars. There were fortunately no medical expenses. That friend happens to be an attorney and I asked if, in hindsight, the auto insurance coverage was adequate. The response:

The state minimum coverage is adequate but did you know that doubling the property damage limit from $50K to $100K was only $12 more annually? My car alone is close to $50K to replace. I also found that the five snow machines at my cabin (that the same teenager could have hit someone with) had no liability coverage – my personal assets would have been at stake. My insurance agent has never called to review my coverages, so it passed under my radar. My auto policy doesn’t cover these and my homeowner’s policy does not cover liability for the snow machines or my personal water craft. That was the most important coverage I added.

This is why we ask about your insurance coverage during our comprehensive financial planning process. We don’t sell insurance but it is important to think about what could put your assets at risk. Don’t let an accident or a theft be the inspiration for a review of your coverage. Let’s talk about this at your next review meeting.

Marietta “Ed” Hall, CFP®
Financial Advisor

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