Author Topic: Mustachian format for determining car insurance liability limits?  (Read 10122 times)

chucklesmcgee

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So I've been debating the appropriate level of liability for bodily injury and property damage car insurance and was wondering if there was a semi-objective way of determining what to set levels for. Everything I find online seems to have been written for overextended, risk-averse consumers  by people who are usually tightly connected with the insurance industry.

Generally speaking, I'm risk-neutral and against most forms of insurance, jewelry insurance, pet insurance, life insurance if you have no dependents or stashe, dental insurance, vision insurance, lost income insurance, credit card insurance, extended warranties, etc. If you can afford to pay for something on your own and it wouldn't bankrupt you, it's probably best not to insure against it. It's only catastrophic things that you absolutely could not afford to lose that insurance is worth buying, like health insurance, and even then, only up to the amount that exceeds what you could be able to pay. Insurer's almost certainly know the likelihood you'll be in an accident better than you will and price their plans to make a profit. It's basically like playing the lotto- you'll lose money on average.

Collision insurance and comprehensive coverage can be thrown out pretty easily. I drive an old sedan that I bought for $5k. If it crashes, I'll fix it or get a new one. The same goes for getting more than my state's minimum for uninsured motorist coverage of $20k for property and $25k for bodily injury. Property more than covers my vehicle, and the limits for bodily injury would cover almost 5 years of my health insurance deductible.

My issue is with bodily injury liability and property damage liability. VA minimum for injury is $25k per person/$50k per accident, for property it's $20k. I think I'm struggling with this determination because you're dealing with something where the potential costs are incredibly difficult to estimate and the value of the policy itself can affect the amount of damages. With all the other policies, you know the value of the thing you're insuring and generally also can exist without paying to replace something. If another party wins a judgement, you more or less have to pay them however much they win and they can potentially seize any assets you have. So what should the limits be?

So sure, you can make the argument that you'll need a $1,000,000 policy for injury because $25k is way too low. Why is $25k way too low?

1. "Damages could totally be greater than the minimum!" What if you kill someone or cause an accident that paralyzes a small child and the jury decides to award pain and suffering and the cost of future medical care for the rest of the kid's life?

Let me ask you this, do more English words start with the letter r or have r as the third letter? Think about for a minute. If you guessed start with the letter r, you're wrong, big time. Almost three times as many words have r as the third letter. But because you can easily think of examples of something you assume it's much more probable than it really is. It's a perfect example of the sort of availability heuristic raised in the issue above. In the end, do you know better than the insurance company that the amount in damages that you'll probably have to pay for injuries you'll cause in the next 6 months is less than your premiums?

2. "But you'll be completely screwed if you get hit with a massive judgment and are seriously under-insured!"  Ok that's fair. No one wants to lose their house and stash, and that could potentially cause a significant amount of stress, lost time, marital problems etc. that well exceeds the value of the loss. But following that reasoning, why stop at $1,000,000? A single person's future medical expenses, lost wages, pain and suffering could definitely exceed $1,000,000. And what if you seriously injured or killed 4 people in the car you hit? Do you need a $5,000,000 policy then? $10,000,000? What if you hit a school bus? Or zone out and plow through a farmer's market, killing and injuring dozens? That's happened.

And why stop at auto insurance then? You can definitely negligently kill and injure people in other ways. What if you forget to put the toilet seat down and a coworker slips and dies? Or your peanut butter sandwich at work kills your coworker who you forgot was violently allergic to even the whiff of the stuff? Or your neighbor's kid gets paralyzed from a rock under your slip-and-slide that you forgot to check for? Or you adjusting your glasses at the gas station acts as a magifying glass, igniting some droplets of gasoline you negligently spilled while filling up your car and this turns into a blazing inferno which eventually blows up the gas station? Does everyone NEED a ten, no $100,000,000 umbrella insurance policy? If not, we all surely need at least some sort of small umbrella policy then, right?

Clearly not. In reality, most victims go away under-compensated for absurdly high-damage accidents. Cases will frequently settle at whatever insurance policy limits are. The average American household has $80k in net worth, and a large percent of American adults have less than $1000 in liquid or liquidatable assets. That's really why underinsured motorists compensation even exists in the first place, because such a situation like this does occur fairly often and it's not even possible to recover anything. No one demands a McDonald's employee's wages be garnished for decades to pay off a 500k judgement. Most tort lawyers won't even take a case like that because of the difficulty of collecting after obtaining a judgement. Sometimes if two people are negligent in causing an accident, only the richer party will actually be sued, even if that person was less negligent.

So where does that leave us? I'm not quite sure. As Mustachians, we have significant staches that can be easily seized. Lots of attorneys do asset checks to estimate net worth, and they can frequently pull up quite a bit of information, including property records, an absence of bankruptcy judgments or anything to suggest limited credit. We'd probably be prime targets for a law suit and attorneys would be less likely to settle, knowing they could collect very easily just by seizing our accounts or putting a lien on our almost- to paid-off houses. Juries typically award more damages when the defendant is very rich vs. very poor.

Insurance companies might not be as interested in representing us for a large claim if it's almost certain that it will exceed our policy limits. I just had a minor fender bender that ended up causing $15k in damages (funny how that works) and I only had a $5k property policy. The other party filed suit and while my insurer assigned an attorney who was ethically bound to represent me for the full amount of the claim and she did, I could definitely imagine insurance companies having more money at stake could still impact the outcome. The types and number of attorneys they'll assign is probably drastically different for say, a $250,000 claim  if you have a $25,000 policy or a $100,000 one. In the end, under the $100,000 policy, your assigned attorneys may have the resources to pull in tons of expert witnesses and get you off entirely or establish contributory negligence to reduce the damages significantly or even get you off. Whereas that effort might not occur with the $25,000 policy, even if your attorney is in fact representing you to the best of his abilities. So the size of your policy might potentially affect the total amount of the judgement against you positively.

On the other hand a big policy could affect you negatively. Insurers typically release the size of your policy to opposing parties before suit is filed (with your permission). A tiny policy might suggest limited means and deter tort lawyers. Depending on what their asset check finds or doesn't, they might be more willing to just settle at your insurer's limits. This didn't help me in my accident, and I was told by my car insurance company that while settling at policy limits is usually quite common, this had significantly shifted over the last two years so that now most insurer's will attempt to sue or settle with the tortfeasor for the remaining balance. I just settled a $10k balance for $5k- which brings up another point: your costs usually will not be as great as you think since insurers are generally willing to settle for about 40-50% on the dollar of uninsured balances.

Despite this prejudice in the court room, I'm wondering if insurers might be ignorant of our Mustachian ways and giving us overly generous quotes. While home ownership is taken into account, I don't think mortgage balance is necessarily considered. And anyways, we're typically in lower-income areas than our stash would suggest and low-income areas equal low claims. Our stash is substantially larger than might be guessed from our occupation or income, again equaling lower claims. We aren't driving flashy sports cars, which is both going to suggest we're more responsible drivers less likely to get in an accident and also not the type of people juries are biased against. Do you think the guy driving the 2001 Toyota Prius who mowed down a kid gets a harsher judgment or the guy driving a shiny red Ferrari under identical circumstances?

So all this quite frankly boggles my mind. My unscientific thought here is to insure yourself up to your stash plus maybe a year's future earnings/savings. This guy seems to agree http://www.commonsenseadvice.com/how_to_buy_auto_insurance.html .  He says that juries never award damages that exceed a person's net worth unless the person was either reckless or drunk. He doesn't cite anything saying this, but I guess I'll go with tha. Insure yourself up to your stash, no more, probably not too much less is his rule.

Is that still cost effective? If juries will award at most your net worth, insuring up to that just ensures $0 liability for you, when you could definitely tolerate losing a small amount if it meant lower premiums overall. Unfortunately, the increments of most policy limits don't allow you to tweak your coverage by just few thousand, so I guess you should just cover yourself.

Considering I own a corporation, have about $200k in easily liquidatable assets and drive a $5k LEXUS (omg!!! It has an L instead of a T, it's so much better!!!) Sue him!) I decided to up my policy from 25k/20k a year to $1,000,000 for injury and $300k for property. Insurance jumped a whole $10 to $35 a month. It's probably a negative expected value money-wise and intellectually unsatisfying, but the satisfaction my reptilian brain gives me from knowing I've preventing an unlikely but catastrophic event is worth it. Plus I can probably get drunk and run some people over too.

starfruit

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Re: Mustachian format for determining car insurance liability limits?
« Reply #1 on: November 24, 2012, 08:40:30 AM »
I've been struggling with this question lately, too. I live in NJ where people sue a lot and I also just had my first experience on a jury for a civil car accident case. The jury is not given any guidelines as to how to decide how much to award in suffering (i.e. the defendant's net worth is xxx so don't award over that amount). We all wanted some guidelines to help us because we were all first-time jurors. And had no idea how much the plaintiff wanted to get or how much the defendant had in coverage or in personal wealth. We didn't know the policy limits, nothing to go on. The only "guidance" we got was from the plaintiff's attorney. He suggested this ridiculous 'compensation formula' wherein you randomly decide an hourly wage the person should be compensated for their suffering, multiply it by however many hours a day you feel the person is suffering, then multiply that by 365, then multiply that by however many years of life that person is expected to live. Even with a modest $15/hour 'salary' this easily pushes the settlement into the millions. It infuriated me that he did this, and it gave me quite a fright when the jury just wanted to start plugging numbers and didn't even want to talk about what the lawyers actually proved beyond a doubt, or have a hard conversation about what it means to put a dollar amount to somebody's suffering. This was for a case with vague slipped disc injuries (you know, could be degenerative, could be acute), no wages were lost, no work missed, no crippling, the people were functional albeit with some pain. We awarded $100k after I pulled the jury through the mud and wouldn't let them use the formula. I still feel this is insanely high for a not-serious injury but better than the 3.6 million we came up with by using the formula. The lawyer was clearly disappointed, I could tell he was looking for a million dollar settlement. So, I don't see how someone can say with any certainty that cases usually settle for x amount. It's really up to the jury.

There are some lawyers who blog about recent settlements, try to find some in your area to see what the range is. At the very least you might see if your coverage is in line with the average settlements. Settlements can be appealed and correct me if I'm wrong but I think the judge can over-rule if things are too out of whack.
 
Curious to hear other responses.

Captain and Mrs Slow

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Re: Mustachian format for determining car insurance liability limits?
« Reply #2 on: November 24, 2012, 01:59:39 PM »
Quote
Collision insurance and comprehensive coverage can be thrown out pretty easily. I drive an old sedan that I bought for $5k. If it crashes, I'll fix it or get a new one.

I thought the same on all that kind of stuff. My car was getting older so to save money I kept the collision but to a large deductible, as well dropped car rental option etc. Was great till I got hit and a mistake in the paper work meant the other company fought paying for it. In the end my 30 euros or so a year I saved ended up costing me 2500 in total. The insurance company paid out another 3 grand in repairs.

So total cost would have been close to 6,000 euros.

As you stated for 6 grand I can buy a reasonably good car, BUT and this is important, the extra insurance was only costing me 300 a year so the pay back time would have been 10 years. So I guess the question is do I take the chance to save a bit?


MooreBonds

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Re: Mustachian format for determining car insurance liability limits?
« Reply #3 on: November 25, 2012, 10:13:34 AM »
Like others have noted, if/when my car has only a $5k or so trade-in value, I'd drop comprehensive and collision and only go with liability. Not only is the comp/coll relatively close to the value of the car (I trust my driving skills and habits), but then there's always the game some insurers play with "is that accident considered a "collision", or does it fall under "comprehensive" (if you have different deductibles or coverage amounts).

I do have underinsured/uninsured coverage as well.

To answer one of OP's original questions about how to decide "how much coverage", I kind of look at it like Capt. Slow:

Quote
the extra insurance was only costing me 300 a year so the pay back time would have been 10 years. So I guess the question is do I take the chance to save a bit?

If I'm looking at a $500,000 liability coverage, and to drop to $250,000 coverage only saves me $20/year, I figure that even if I 'waste' that extra $20/year on the higher limit, over my entire life that only totals maybe $8,000. I figure I'm due for at least one accident or incident that might trigger my liability insurance, so I'm probably going to need that extra coverage at least once in my life - so for an extra $250,000 coverage, it only costs me maybe $8,000 for the rest of my life. That cost/benefit trade off is worth it for the extra peace of mind and protection for a relatively little amount.

My current auto coverage is $250,000 per person, $500,000 per incident, with an additional $500,000 umbrella. Usually, the umbrella is cheaper to increase compared to your auto coverage (plus it also covers you when you're not behind the wheel).

With health insurance, it's somewhat easier to do the cost/benefit analysis while I'm young, because the odds of me needing any healthcare is incredibly small, so it's easy to go for a high deductible policy and bank the savings - but when I get older, I might rethink that, since the odds of needing at least some expensive medical procedure will increase as one gets older. However, when it comes to things like auto/liability/homeowner's coverage, there isn't as easy of a way to predict the incident occurrence, since it's not as closely related to measurable things like age (yes, auto/home accidents could increase as you age and have slower reaction times, but outside of that, it's more random than most health issues)

There is a small chance to begin with that I'll ever be at fault in an accident, and an even smaller chance that they'll make a claim for liability/pain and suffering, and an even SMALLER chance still that they would try and collect several hundred thousand dollars....but just as the odds of your home burning down are small, there is always some line that everyone crosses where they say "saving that $x/year just isn't worth the uneasy, sleepless nights I'd have worrying about something happening and me not being sufficiently insured".


Peter

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Re: Mustachian format for determining car insurance liability limits?
« Reply #4 on: November 25, 2012, 12:35:42 PM »
I've been struggling with this question lately, too. I live in NJ where people sue a lot and I also just had my first experience on a jury for a civil car accident case. The jury is not given any guidelines as to how to decide how much to award in suffering (i.e. the defendant's net worth is xxx so don't award over that amount). We all wanted some guidelines to help us because we were all first-time jurors. And had no idea how much the plaintiff wanted to get or how much the defendant had in coverage or in personal wealth. We didn't know the policy limits, nothing to go on. The only "guidance" we got was from the plaintiff's attorney. He suggested this ridiculous 'compensation formula' wherein you randomly decide an hourly wage the person should be compensated for their suffering, multiply it by however many hours a day you feel the person is suffering, then multiply that by 365, then multiply that by however many years of life that person is expected to live. Even with a modest $15/hour 'salary' this easily pushes the settlement into the millions. It infuriated me that he did this, and it gave me quite a fright when the jury just wanted to start plugging numbers and didn't even want to talk about what the lawyers actually proved beyond a doubt, or have a hard conversation about what it means to put a dollar amount to somebody's suffering. This was for a case with vague slipped disc injuries (you know, could be degenerative, could be acute), no wages were lost, no work missed, no crippling, the people were functional albeit with some pain. We awarded $100k after I pulled the jury through the mud and wouldn't let them use the formula. I still feel this is insanely high for a not-serious injury but better than the 3.6 million we came up with by using the formula. The lawyer was clearly disappointed, I could tell he was looking for a million dollar settlement. So, I don't see how someone can say with any certainty that cases usually settle for x amount. It's really up to the jury.

There are some lawyers who blog about recent settlements, try to find some in your area to see what the range is. At the very least you might see if your coverage is in line with the average settlements. Settlements can be appealed and correct me if I'm wrong but I think the judge can over-rule if things are too out of whack.
 
Curious to hear other responses.

That's very interesting. I wonder what occurs if a jury awards a 2m settlement when the plantiff has a 500k insurance policy and only a measly amount of personal wealth?

chucklesmcgee

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Re: Mustachian format for determining car insurance liability limits?
« Reply #5 on: November 25, 2012, 04:21:26 PM »
That's very interesting. I wonder what occurs if a jury awards a 2m settlement when the plantiff has a 500k insurance policy and only a measly amount of personal wealth?

I'm a law student and I've taken a torts class (I AM NOT A LAWYER THIS IS NOT LEGAL ADVICE DO NOT RELY ON THIS) but generally it's the burden of the defendant to bring up his lack of wealth to a jury. Generally though, the sorts of people who get sued beyond their policy limits already have a net worth beyond the policy limits so bringing this up wouldn't help.

I'm guessing most insurance companies would probably settle at the policy limits in cases that looked like they'd end up for 2m so they'd never really get to court.  A private attorney probably would likely do the same- it would be incredibly easy for him to settle with the insurance company for 500k (of which he gets a third!) versus trying to drag the whole thing through court to get a judgment the defendant might only be able to pitch in 5k so- if he even pays up.

chucklesmcgee

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Re: Mustachian format for determining car insurance liability limits?
« Reply #6 on: November 25, 2012, 04:35:35 PM »
As you stated for 6 grand I can buy a reasonably good car, BUT and this is important, the extra insurance was only costing me 300 a year so the pay back time would have been 10 years. So I guess the question is do I take the chance to save a bit?

Yes. Absolutely ditch collision coverage, assuming you could afford to buy a new car without any hardship than a loss to your savings. You're being a bit biased here ex-post- just because the accident occurred doesn't mean it was any more probable at the time you bought insurance.  Your insurer knew and continues to know your odds of being in a crash in the next 6 months extremely well and prices your policy accordingly.

For all the people like you paying in premiums, the insurance company pays out way less in claims than it takes in in premiums- it's a losing bet. Unless you know something that your insurer doesn't that makes you far more likely to be in a crash than your insurer would think, you are not going to come out ahead on average. You wouldn't pay $1 to win $20 in a lottery game that had a 1 in 30 chance of winning, would you? Would you pay $1 to avoid losing $20 in a lottery "game" that had a 1 in 30 chance of you losing $20 if you didn't pay $1? That's basically insurance with affordable consequences in a nutshell.

unpolloloco

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Re: Mustachian format for determining car insurance liability limits?
« Reply #7 on: November 26, 2012, 08:05:12 AM »
Yes. Absolutely ditch collision coverage, assuming you could afford to buy a new car without any hardship than a loss to your savings. You're being a bit biased here ex-post- just because the accident occurred doesn't mean it was any more probable at the time you bought insurance.  Your insurer knew and continues to know your odds of being in a crash in the next 6 months extremely well and prices your policy accordingly.

For all the people like you paying in premiums, the insurance company pays out way less in claims than it takes in in premiums- it's a losing bet. Unless you know something that your insurer doesn't that makes you far more likely to be in a crash than your insurer would think, you are not going to come out ahead on average. You wouldn't pay $1 to win $20 in a lottery game that had a 1 in 30 chance of winning, would you? Would you pay $1 to avoid losing $20 in a lottery "game" that had a 1 in 30 chance of you losing $20 if you didn't pay $1? That's basically insurance with affordable consequences in a nutshell.

Actually, auto insurance is typically pricedso that payouts approximately equal total premium intakes.  Insurance companies make money off of financial markets between the time premiums are taken in and payouts given.  A jury is unlikely to limit liability to whatever the coverage limit is if a policyholder is carrying state minimum coverage and the defendant has a net worth of 1M.  Typically, the advice is to carry coverage up to your total net worth, but I'm not sure how valid this advice is...

chucklesmcgee

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Re: Mustachian format for determining car insurance liability limits?
« Reply #8 on: November 26, 2012, 12:56:36 PM »
Yes. Absolutely ditch collision coverage...
A jury is unlikely to limit liability to whatever the coverage limit is if a policyholder is carrying state minimum coverage and the defendant has a net worth of 1M.  Typically, the advice is to carry coverage up to your total net worth, but I'm not sure how valid this advice is...
You're right, but I'm talking about collision/comprehensive coverage- payouts that the insurance company pays you for damage to your vehicle, not for damages you cause to others. Collision and comprehensive coverage can be ditched if you can comfortably afford to repair or replace your car.

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Actually, auto insurance is typically pricedso that payouts approximately equal total premium intakes.  Insurance companies make money off of financial markets between the time premiums are taken in and payouts given.

Ok, that's a fair point, but really just a technicality. Premiums are priced such that the price of the premiums plus interest earned comfortably exceeds expected payouts. As Mustachians, the money we aren't paying in insurance is also being invested and earning interest, at a rate that I have no reason to believe is substantially different from what insurance companies' receive. So the calculation for us is really still the same as well. Do we want to sacrifice the cost of premiums plus the opportunity cost of earned interest for expected payouts less than our premiums and earned interest? Answer is no if we could comfortably afford to replace our car.

I think personal injury liability and property damage liability is probably one of the few types of insurance which it makes sense to actually purchase more coverage for as our stashe grows.

I wish that insurance companies could offer a sort of "gap deductible" plan- one where they'd cover the legal state minimums because it's illegal to offer any deductibles on those, and then allow customers to set a deductible range where they'd be comfortable paying and then a ceiling that would kick in for any claims over that. For instance, if the state minimum for personal injury liability coverage is $25k, I choose a plan that was, for instance: 25/*25-125*/125+: the insurance company would pay up to the minimum of 25k for a claim, I would be responsible for paying the next $100k on a claim, and then if shit had really hit the fan, they'd pay anything on the claim that was beyond that. So for a 30k claim, I'd pay 5k and they'd pay 25k, for a 200k claim they'd pay $100k and I'd pay $100k.  They wouldn't pay beyond my deductible until I had paid my deductible to them. This way I could shield myself from really awful claims, maintain the minimum coverage, but at the same time reduce my premiums because I wouldn't be paying for coverage of accidents I could already afford. Also, people would probably be more careful drivers who opted for such policies because they knew they would be on the hook for quite a bit, so insurers could offer better premiums. But I'm sure it would require states rewriting some laws and the like.

Captain and Mrs Slow

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Re: Mustachian format for determining car insurance liability limits?
« Reply #9 on: November 29, 2012, 05:16:34 AM »
BTW I should mention it also depends on what insurance is like in your area. Where I live, Spain, insurance, oddly, is very cheap. Ontario as MMM mentions is insane, collusion is only there for expensive vehicles and then only if it's a total write off. If I remember correctly 2 claims or  2 tickets and a few other minor things (like a missed or bounced payment) will put you in the high risk pool and then you're looking at thousands per year.

In that case the numbers would look very different.

Scottma

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Re: Mustachian format for determining car insurance liability limits?
« Reply #10 on: November 29, 2012, 07:27:39 AM »
@MooreBonds


I do have underinsured/uninsured coverage as well.


Question for you - what is the rationale behind the underinsured/uninsured coverage? I'm thinking through the amount of coverage I need and have struggled with whether I need this coverage. My thought is that I have health insurance to cover any medical expenses, and that I wouldn't endure financial hardship by having to replace my car. So I guess I don't see benefit to carrying this coverage.

chucklesmcgee

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Re: Mustachian format for determining car insurance liability limits?
« Reply #11 on: November 29, 2012, 11:30:19 AM »
Question for you - what is the rationale behind the underinsured/uninsured coverage? I'm thinking through the amount of coverage I need and have struggled with whether I need this coverage. My thought is that I have health insurance to cover any medical expenses, and that I wouldn't endure financial hardship by having to replace my car. So I guess I don't see benefit to carrying this coverage.

I think you're right. Underinsured coverage for medical expenses would pay your deductible. I guess if you were in some extremely catastrophic accident that left you paralyzed for life and required daily care, a policy like this would pay out enough money to cover your deductibles for years, up to the level of your underinsured policy. That's the only situation I can think of. No need for property under-insured coverage if you could comfortably replace your vehicle.

bogart

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Re: Mustachian format for determining car insurance liability limits?
« Reply #12 on: November 29, 2012, 06:43:16 PM »
I guess if you were in some extremely catastrophic accident that left you paralyzed for life and required daily care, a policy like this would pay out enough money to cover your deductibles for years, up to the level of your underinsured policy. That's the only situation I can think of.

If we're thinking worse- or at least really bad-case scenarios, bear in mind that medical insurance typically doesn't cover many of the costs associated with long term care and disabilities.  Obviously, check your own policy, etc., etc., but if you were injured in a way that meant you couldn't take care of yourself (on the one hand), but didn't (on the other hand) need skilled medical care, it's pretty likely medical insurance would leave plenty of your needs unmet (and this, of course, is ignoring the possibility that you might also not be able to earn an income, assuming that's also a need -- disability insurance is the product that covers that problem, at least partially).  How much that's worth worrying about is of course a personal decision, but that's the sort of thing that auto insurance might address where medical insurance would not.

MooreBonds

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Re: Mustachian format for determining car insurance liability limits?
« Reply #13 on: December 02, 2012, 01:25:48 PM »
Question for you - what is the rationale behind the underinsured/uninsured coverage? I'm thinking through the amount of coverage I need and have struggled with whether I need this coverage. My thought is that I have health insurance to cover any medical expenses, and that I wouldn't endure financial hardship by having to replace my car. So I guess I don't see benefit to carrying this coverage.
[/quote]

As others have noted - your health insurance only has limited coverage for things like physical therapy/long term care.

And that doesn't even get into the whole 'pain and suffering' aspect (for true pain and suffering...not the "oh, I think my neck hurts after that 2 mph fender bender").

Also, one other aspect to consider for under/un insured: the principle cause of the accident is an un/underinsured driver. They hit you. You then hit someone else, causing damage to the 3rd party's vehicle/property/person. The original cause of the accident is un/underinsured, leaving you potentially vulnerable for the 3rd party's damages.

Granted, if you have an umbrella policy, that could offer some coverage...but by having the whole enchilada of protection, you don't have to worry about the insurer having some clause about "well, you weren't originally at fault, so you only get $X coverage for liability instead of $Y".