Saturday, May 15, 2010

Downsides to not purchasing optional coverage on a motor vehicle policy

Under Massachusetts law people who own cars are required to have automobile insurance. The required or "compulsory" coverage includes $20,000 of coverage for "bodily injury to others."

I recommend that almost everyone purchase optional bodily injury coverage in addition to the compulsory coverage. There are several reasons for this:

1. As I discussed here with respect to general liability insurance, anyone can have an off day. If you space out or are distracted by your kids or simply miss a stop sign, you could seriously injury someone. Higher insurance limits will provide more money to the injured person, which could make all the difference to them. While everyone needs to evaluate their own financial circumstances in determining how much insurance they can afford, I firmly believe that ethics require those of us who drive to have higher than compulsory limits if we can afford them.

2. If you have appropriate insurance for your financial station in life the attorney for the injured person is likely not going to be interested in going after your personal assets. They will settle with the insurance company. But if you have inadequate insurance for your financial situation, the attorney is much more likely to encourage their client to insist that a settlement include contribution from your personal assets.

3. Compulsory insurance does not cover you if you are driving outside of Massachusetts. Optional bodily injury insurance, in any amount, will cover you in every state and Canada.

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