How Much Insurance Should You Get? A Lawyer’s Advice

Thomas, a reader in Chicago, wrote: “Liberty Mutual Insurance television commercials, which state ‘Only Pay for What You Need,’ appear to suggest that other insurance companies will sell you coverages you don’t need. I’ll bet a lot of people wonder what they mean.”

This column has received similar comments, and to find out what ‘Only pay for what you need” means, I contacted the company’s media relations team at Boston-Based Liberty Mutual, asking them that very question. That was weeks ago, and I am still waiting for a response. So, I turned to a trial attorney whose law practice concentrates on insurance company bad faith and asked him what he thought. The discussion that followed surprised me.

Customers Typically Should Insist on More than Minimums

“When they say you will only pay for what you need, they are implying that other insurance companies will automatically sell you coverages that you do not need, which is complete nonsense,” says Los Angeles-based attorney Shant Karnikian.

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Actually, the opposite may tend to be true about some insurance companies, he says. They may prefer if customers bought less insurance coverage, not more. And that can be a problem for consumers.

“The insurance industry wants to minimize exposure to future customer losses, and plaintiff lawyers are already seeing this reflected in the companies’ marketing practices, where they only want to sell minimum limits of auto or homeowners insurance, reducing payouts in the event of a claim. If you buy more coverage, they are exposed to paying more for the loss.

“Even if you need it, they don’t want to sell it! But if you ask for more coverage, they are obligated to sell it to you. This means consumers must become educated and learn the coverages they absolutely must have.”

Insurance Agents Not Required to Advise What Coverages You Need

“Auto and property insurance companies let you accept or decline various types of coverage,” Karnikian says, “and today especially, the public needs to be aware that, with some very limited exceptions, insurance agents are not required to counsel their customers as to what they should be purchasing.”

That’s right. Insurance agents are typically not required to tell you what coverages are available or what you likely need. “In most instances, insurance agents are mere order takers, and unless you tell them what you want, they are generally under no obligation of advising you to obtain certain types of coverage,” he observes.

Keep These Coverage Guidelines in Mind

For those shopping for insurance, Karnikian gives these recommendations:

1. Auto Insurance: Never buy just the minimum amounts that are required by your state, which varies and may be as low as $10,000 per person or $20,000 per accident. Buy 50/100,000 liability limits or more, meaning $50,000 per person or $100,000 per accident. And always purchase medical payments coverage and uninsured/under-insured coverage in limits no less than $100,000.
2. Homeowners/Commercial Property Insurance: Overestimate the cost of rebuilding your home or office, and include coverage to bring the property current with building codes. In a major loss — such as a wildfire — material and labor costs will be far greater than at normal times. Inadequate coverage means you will have to pay out of pocket the difference in price.
3. Ask in Writing: “What is the most coverage that I can possibly get for my home, car, liability and business?” The difference in premium costs between the basic policy and a much larger one will not shock the conscience. It is definitely worth it.
4. Consider a Broker Instead of an Agent: Brokers are not limited to selling policies from just one company. They work for you. Agents are limited to selling only the policies of the company they work for, which may not have the best policy for your needs.

Karnikian concluded our discussion with this advice: “Imagine the cost of your worst-case scenario and buy insurance in limits high enough to cover it.”