I have PLPD on my auto policy. Is that bad?
Many people think that Personal Liability and Property Damage (commonly referred to as PLPD), which is the insurance required by law, is “bare bones” insurance and doesn’t provide adequate coverage. Meanwhile, many people assume that carrying “full coverage” means they are properly insured. This is not necessarily the case. In fact, some drivers that carry only PLPD are actually better
insured than drivers with full coverage.
This is because full coverage includes PLPD coverage. Full coverage is simply adding physical damage coverage, a completely unrelated coverage which covers damage to your vehicle, to PLPD coverage. So how could PLPD provide better insurance protection than full coverage? The answer lies in the PLPD coverage limits. These limits, whether carried as PLPD only or carried as part of full coverage, are determined by you (and your agent) and will differ between drivers. For instance, the minimum PLPD coverage required by law in Michigan is $20,000 per person/$40,000 per accident. However, most professionals recommend carrying $500,000 per person/$500,000 per accident. Although these limits of $20,000/$40,000 vs. $500,000/$500,000 would both be considered “just” PLPD, the protection provided is drastically different. Consider the following example:
Assume Driver 1 has an older car that is not worth insuring for physical damage (like discussed in FAQ #2) and therefore only has PLPD, with coverage limits of $500,000 per person/$500,000 per accident, on his auto policy. Assume Driver 2 has a newer car and carries full coverage consisting of PLPD coverage limits of $20,000 per person/$40,000 per accident, plus physical damage coverage for his car. Now assume that Driver 1 and Driver 2 are in separate accidents where both of their vehicles are totaled and they are both at-fault for serious injuries to another party, resulting in a lawsuit of $250,000 against each driver. The financial consequences would look like this:
Driver 1: His car isn’t insured for physical damage, so he loses the value of his car (assume $5,000). However, his PLPD coverage limit of $500,000 exceed the lawsuit of $250,000, so his insurance company will pay the lawsuit in full. Therefore, although he “only” has PLPD, Driver 1 has suffered a financial loss of only $5,000 from the accident.
Driver 2: His car is insured for physical damage, so his insurance company will pay for the damage to his car. However, the lawsuit of $250,000 exceeds his PLPD coverage limit of $20,000 and he will have to pay $230,000 of the lawsuit out of pocket. Therefore, Driver 2, although he has full coverage, has suffered a financial loss of $230,000, which is $225,000 more than the financial loss suffered by Driver 1.
The key point here is that having “full coverage” simply means that the driver insures his vehicle for physical damage and carries at least state minimum PLPD limits ($20,000/$40,000). It does not necessarily mean he is adequately insured, as demonstrated in the example above.Back to TopI’m currently insured on my parents’ policy. When do I need my own?
It’s usually okay to be on your parents’ policy as long as you live in their household and are driving their cars. Auto policies define an insured as a “resident relative.” You are obviously related, so as long as you are a resident of their household then there should not be a problem.
If you don’t live at their house, you should have your own policy. Legally you would not be considered an insured under their policy (even if you are listed as a driver) because you don’t qualify as a “resident relative.” This can potentially cause major problems in the event of a claim. If you do not live in their house because you are away at school, you typically can remain on their policy as long as you still qualify as a resident of their household (based on your driver’s license address, voter registration address, frequency of visits home, etc.).
Additionally, if you have a car titled in your own name (not a parent’s name), you should generally have your own auto policy regardless of your living situation. This differs by insurance company, however, so please confirm this scenario with us so that we can advise you properly. Back to TopI am going to be renting a car on vacation. What coverage does my auto policy provide? Do I need to purchase the insurance offered by the car rental company?
The liability coverages from your auto policy will generally cover you when driving a rental car (or someone else’s car). If you carry physical damage coverage on at least one of the vehicles on your policy, your auto policy generally will also provide physical damage coverage for your rental car (subject to your deductible).
However, most auto policies will not
cover the loss of use or the depreciated value of the rental car because of being in an accident. Many companies are now offering an endorsement you can add to your policy for such coverage. If you don’t carry physical damage coverage on a vehicle on your auto policy, you should purchase the insurance offered by the rental company. It is important to check with your agent prior to refusing the insurance coverage offered by a rental car company as not all policies contain the same provisions.Back to TopI let my friend borrow my car for a few days while theirs was being repaired. Are there any coverage issues?
Nope - your auto coverage will follow your car. If you have only PLPD on your car, but your friend has physical damage coverage on his car, his policy would provide physical damage coverage for your car while he is driving it. However, if your friend is sued for an accident he caused while driving your car, you may also be listed as a defendant in the lawsuit. Your liability coverage would cover you in this scenario.Back to TopMy spouse and I just got married. We are still on separate auto policies. Can we combine them?
Yes. In fact, most companies will require that you both be on the same policy. Combining auto policies provides convenience and is often less expensive than having separate policies due to the “multi-car” discount available from most companies.Back to TopI have a child away at college. He doesn’t have a car at school. Does he still need to be on my policy?
In most situations, yes he does. If he does not have his own separate policy and would still qualify as a member of your household, he should still be listed on your policy. Without coverages provided by your policy, he could run into all types of complications when driving someone else’s vehicle or if he is injured as a pedestrian.
Most insurance companies allow the rating of children away at school as “occassional” drivers, which helps mitigate the cost of keeping them on the policy. Additionally, if a student (high school or college) has a 3.0 GPA or better, most companies offer a “good student discount.”Back to TopI have a child away at college. Are my home insurance coverages extended to them?
Yes – as long as your child still qualifies as a resident of your household (based on their driver’s license address, voter registration address, frequency of visits home, etc.). Your personal liability coverage will apply to them, as well as 10% of your contents coverage (“Coverage C”).Back to TopI have some expensive jewelry. Does my policy provide adequate coverage?
No. A typical homeowner’s policy has a coverage limit of $1,000 for stolen jewelry. Additionally, there is no coverage if your ring slips off your finger and down the drain, if your necklace breaks while swimming in the ocean, or if you simply misplace a piece of jewelry. The best way to provide ample coverage for your jewelry is to “schedule” it on your policy. Scheduling your jewelry provides much broader coverage (“mysterious disappearance” and even just losing it is
covered), it avoids the $1,000 policy limitation, and it eliminates your deductible in the event of a claim. It's usually surprisingly affordable to schedule jewelry on a homeowner's policy.Back to TopThe coverage limit for my house is much higher than the market value of my home. Why?
The typical homeowner’s policy provides “replacement cost” coverage. The replacement cost of your home is the cost to rebuild it (and clear the debris) after a total loss with today’s material and labor costs. Although housing values have fluctuated, rebuilding costs have remained relatively stable. It is common for the replacement cost of a home to be 20% (or more) above the market value of the home.
For example, assume your home is worth $150,000 in today’s housing market, but the cost to rebuild your home after a total loss would be $180,000. You don’t want (nor does the insurance company want) to insure your home for the market value because, in the unfortunate event of a total loss, you would come up $30,000 short of the cost to rebuild your home. We use specialized software to help determine the replacement cost of your home so that you are properly insured. Be sure to notify us of renovations, add-ons, or other improvements to your home that increase its replacement cost as your policy may need to be updated.Back to TopI have an older boat that isn’t worth very much. Do I need to insure it?
Yes. Although your boat may not be valuable enough to insure it for physical damage, you likely will need a separate policy to cover your personal liability in the event that you are sued related to the use or ownership of your boat. Most homeowner’s policies provide liability coverage for ownership of boats that are under a certain horsepower, within a certain size, and propelled by certain types of motors. These parameters differ by insurance company and are subject to change. If your boat does not fit one of these restrictive categories, you likely need a separate boat policy to provide liability coverage (as well as physical damage coverage, if desired).Back to TopI’m renting an apartment but don’t have a renter’s policy because none of my belongings are very valuable. Should I have a renter’s policy anyway?
Yes. Even though you don’t think your belongings are worth insuring, a renter’s policy provides personal liability coverage that everyone should have. Personal liability coverage would cover you in a lawsuit for injury you caused to someone or damage you did to someone’s property. For instance, if:
-you slice a tee shot and hit another golfer,
-someone gets injured while in your apartment,
-you start a fire in your apartment that damages the building,
-your dog bites a neighbor, or
-you serve alcohol to someone who later injures someone while driving,
you would be covered by the personal liability coverage provided in a renter’s policy. Renter’s policies are extremely affordable, often times less than $12/month.Back to TopHow can I manage the cost of my insurance program?
No one wants to pay too much for insurance – and no one should have to. However, it is important not to sacrifice coverage just to save a few dollars on your premium. Should you need to file a claim, poor or limited coverage can end up costing you much more out of pocket than you saved on premium. Consider these suggestions for reducing your premium without sacrificing coverage:
1) Use a professional you trust.
Have a professional review your coverages and suggest any changes.
2) Insure your policies with the same company.
Almost every company provides a “multi-policy discount” when you insure both your auto and home (or renter’s) policy with them.
3) Increase your deductibles.
Increasing your deductibles is one of the easiest ways to reduce the premium on your insurance policies.
4) Keep your credit score high.
If possible, maintain the highest credit score you can. Every company in Michigan incorporates credit scoring into their insurance rates.
5) Don’t file small claims.
Insurance companies use all types of actuarial data to determine the likelihood of people filing claims. However, the best and most obvious predictor of future claims is claim history. Most companies will apply a hefty surcharge after a certain number of claims. To avoid that surcharge, it is often best to pay smaller claims out-of-pocket rather than turn them in to the insurance company.
6) Keep a clean driving record.
It’s simple – drivers with tickets tend to have accidents and therefore have claims.
7) Pay your premiums in full.
Many insurance companies are now offering substantial discounts for clients who pay their premiums up front.
8) Join a professional organization.
Most insurance companies have discounts for members of certain organizations. Discounts are typically available for members of college alumni associations, members of the MEA, members of the MACPA, members of an engineering society, and members of AARP or AMAC, to name a few.Back to Top