Hello Californians! Start protecting your paycheck, not that used car!

I understand that times are tough, and we are struggling with inflation and the rising cost of living, especially here in California. What I don’t understand is why someone will insist on having “full coverage” on their 15-year-old vehicle or salvage title vehicle while purchasing the state minimum liability limits. Or at least I did not understand until I realized liability coverage is an intangible product to many people.

Most people when they think about auto insurance, think about protecting their vehicle (a tangible item). What they don’t think about it is protecting their liability (an intangible item to many people). 

If your paycheck is tangible, so is liability coverage. This is an important point to understand. If you have an at-fault accident and cause more damage than the liability coverage you purchased, you could face:

• Your wages garnished

• A lien on your home

• Have to pay for the additional damage out of your savings account

The crazy thing is increasing your liability coverage to the correct limits probably costs less than putting “full coverage” on that vehicle worth $7000.

A real life example. I had a customer who made about $75,000 a year and owned their condo. They were presented two coverage options for the same exact monthly price. These are the coverage options they were presented:

	Policy A/ State Minimum "Full Coverage"	Policy B/ Better Liability Coverage
Bodily Injury Coverage	30/60	100/300
Property Damage Coverage	25	100
UMBI	30/60	100/300
UMPD	n/a	$3,500
Med Pay	$1,000	$1,000
Collision Coverage	ACV - $500 Ded	not purchased
Comprehensive Coverage	ACV - $500 Ded	not purchased

They chose Policy A/ State Minimum “Full Coverage.” About three months after purchasing the policy they got in a car accident where the car in front of them suddenly stopped because of a dog running in the street. The customer totaled their car, caused $35,000 in damage to the other vehicle and $40,000 in injuries and loss of wages to the other driver. Their State Minimum “Full Coverage” policy paid for much of the damage but they still had to pay for the remaining damage they caused. Here is a look at how the two policies would pay out in this situation.

	Damages	Policy A/ State Minimum "Full Coverage"	Policy B/ Better Liability Coverage
Bodily Injury Coverage	$40,000	$30,000	$40,000
Property Damage Coverage	$35,000	$25,000	$35,000
Collision Coverage	$7,000	$6,500	$0
Total Claim	$82,000	$61,500	$75,000
Amount Out of Customer’s Pocket		$20,500	$7,000

Since the insured chose Policy A they had to pay the other party $20,000 for the damages. Had the customer chosen Policy B they would have only had to pay to replace their own  total loss vehicle (that was worth $7000).

So, what policy would you choose? Would you rather risk $20,000 of your hard earned savings, or walk for a while until you can purchase another vehicle?