I’m not in the business of selling car insurance. I’m a trial lawyer.
However, I deal with auto insurance companies every day. I’ve seen the aftermath of hundreds of car accidents. Vehicle damage, injuries, lost wages, you name it. I’ve sued auto insurance companies and won. I’m not exactly an auto insurance expert, but I know a few things from experience. Here are two insights I wish everyone knew:
1. Minimum insurance limits are not enough! Get as much uninsured/underinsured insurance as you can afford!
I can’t possibly stress this enough. Most states’ current limits are $20,000 or $25,000. (Luckily the Illinois House is reviewing a bill right now that would raise the minimum limits to $100,000. Still not enough, but better). That sucks. It will cover your minor cases and bumper tap cases, but if there is any significant injury at all – broken bones, herniated discs, torn ligaments, TMJ disorders, heck even an overnight hospital stay for observation, the case will be worth more than $20,000 and your assets could be on the line.
The super-important flipside to this is underinsured/uninsured coverage. You can control what you do behind the wheel (to an extent… everyone makes mistakes from time to time). You can’t control what other people do or how much insurance they have. What if you get really hurt because someone else ran a red light or turned in front of you? And what if that person has no insurance or crappy insurance? That’s where your own insurance can kick in – but only if you have enough coverage. Ask any personal injury lawyer, and they’ll tell you that they’ve settled many cases for meager insurance policy limits despite very serious injuries just because there was nothing more to go around. I’ve had cases where people have died, spent months in the hospital, etc that have settled for $100,000 or less because the other drivers didn’t have good coverage and our clients didn’t have good underinsured/uninsured motorists coverage.
I can’t stress that enough. I’m not trying to sell insurance, but buy more insurance!
2. If you took out a 4 or 5 year car loan, you probably owe more than the car is worth!
Once again, I don’t work for a bank or a car dealer, but I’ve seen my fair share of wrecked cars. Car dealers like to sell cars based on monthly payment, rather than on sticker price. They do this because longer loans (5 years and up) allow them to sell more expensive cars with smaller payments. These payments, over a longer term, make them more money.
Simple, right? But what’s the problem?
The problem is that, after a few months or so, you will owe more on a five year car loan than the car is worth. Then, if some idiot pulls out in front of you and totals your car, his insurance (or your insurance) will only have to pay the value of your car. You’re stuck with the rest of the loan for a car you don’t even have. On top of that, you need to buy another car and you don’t have anything to trade in.
Which leads me to my next point… don’t roll an old car loan into a new car loan. This will make the chasm between what you owe and what your car is worth even deeper.
My rule of thumb is not to take out more than a 4 year car loan (3 is much better), to always put a substantial downpayment down, and to never buy a new car. (Easy for Mr. Rich Lawyer over here to say, right? I do the same thing. It’s 2011 and I drive a 2006 Nissan. I put money down. I bought it used 2 years ago. If you read this and think that you can’t afford the car you want based on my method, you’re right – you can’t.)
Now I know that people will say “but would banks really loan people more money than they should?” YES! If the mortgage and banking crises of the last couple years taught us nothing else, it’s that banks will loan more money than they should and roll the dice.
So my bottom line is not to reach out too far on car loans and buy a lot of insurance. For some people this is “Duh 101” but for many people this is very good advice. Please take it.
(Howard Zimmerle is a personal injury and car accident attorney in the Quad City area, including Davenport, Bettendorf, Muscatine, Rock Island, Moline, East Moline, Silvis, Galesburg, Kewanee and surrounding areas. He can be reached at hzimmerle [at] mjwlaw.com, or 309-794-1660).