Wednesday, August 02, 2006

Liability Insurance: How much is enough?

Everyone would like to save money on auto insurance, right? Yesterday David Bach, The Automatic Millionaire, had a column on Yahoo! Finance titled "Five Ways to Slash Car Insurance Costs".

Bach's suggestions were all run-of-the-mill variety, you know, shop around, keep your driving record clean, blah, blah, blah. But one item really caught my eye.
Don't over-insure. Many experts suggest that liability limits of $50,000 for one person injured in an accident, $100,000 for all people injured in an accident, and $25,000 for property damage liability (called 50/100/25) is sufficient. And before you buy other add-ons such as medical coverage, check to make sure you're not just duplicating coverage you already have.
Excuse me? In 21st century, lawsuit-crazy America, $100,000 in auto liability coverage is enough? I don't think so and Bach's recommendation is irresponsible. I would like to meet the "experts" he's talking to.

Last year, one of our clients was at fault in an accident in which several were injured and a boy was killed. Our client, a good driver, hadn't been drinking, speeding or driving carelessly. A second of inattention, a brief error in judgement and the result was catastrophic. The victims' were awarded nearly $2 million. And this could happen to anyone. Fortunately our client carried a multi-million dollar umbrella policy, otherwise he would have been financially ruined.

So folks, just stop and think for a minute and use common sense before you take the advice of some columnist or, for that matter, some blogger. It could make a real difference.

David Bach and I both worked for Morgan Stanley in the Bay Area though we never met. Bach now lives in New York City and is making his fortune writing books and magazine articles about personal finance. I'm a CFP and now I do financial planning for high-net-worth folks in Northern California and write The Happy Capitalist. Tell me, whose got the better gig?


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