Auto insurance: what your clients need to know

By Aryn Bates

We’ve all seen the auto insurance ads with famous athletes and catchy jingles, but how do you know who to trust, if your clients are covered correctly, and if they’re paying a fair price? You spend countless hours researching the markets, identifying the best investment product for your clients’ assets, and planning for their retirement. Now, it’s time to do the same for auto insurance.

After working with successful families on their personal risk management for over a decade, I’ve, unfortunately, noticed several common exposures when it comes to their auto insurance coverage.

High-end vehicles with low-end coverage

With a host of upgrades and safety features, new vehicles commonly cost upwards of $50,000. Protect the value of those cars, both for accidents and for repairs, with an appropriate policy. Teslas, for example, can only be worked on at specific body shops, and replacement parts are typically hard to find or there is a long wait as most parts for new cars are put into production.

Risk factors when purchasing these cars include the following:

• Property damage – Limits on the insurance policy should be adequate in case the insured causes an accident with a luxury vehicle.
• Rental reimbursement – Waits for parts and skilled labor shortages can cause even simple repairs to take months. Many insurance policies limit the daily rental rate or have a maximum pay period of one month.
• Original equipment manufacturer (OEM) parts – Most vehicle lease requirements include repairing the car with OEM parts, not aftermarket parts. If the insurance policy doesn’t cover OEM parts, the insured is responsible for the price difference.

To ensure premium dollars are in line, especially with pricier cars, deductibles at $500 to $1,000 are most appropriate.

Vehicle usage, financing, and titling

Vehicle usage, financing, and titling can be especially tricky with business-owner clients. Unfortunately, named insured and insurable risk accuracy is a large and frequent liability risk.

If the vehicle is owned and titled by a client’s business, then the vehicle should be on a commercial auto policy. If all vehicles in the household are insured commercially, then a “non-owned auto policy” can be purchased for a few hundred dollars annually, which will provide coverage when renting a vehicle, and packaged with the home and umbrella policy for the best rate.

That auto insurance must be written in the state that the vehicle is titled in. The correct garaging location needs to be documented as well.

Adult children living outside the home but still driving parent-owned cars can cause a liability risk. It is best to separate the liability here by transferring ownership of the vehicle to the adult child and placing an auto insurance policy in conjunction with their homeowner’s or renter’s insurance policy.

Household employees such as nannies or home healthcare aides driving the insured person’s vehicle is OK, as long as they are added to the auto insurance policy if they regularly use the vehicle. The car owners should check their driving records and personal liability limits.

 

This brief, high-level overview of auto insurance liability risks is a starting point. Always direct specific insurance coverage questions to the insurance agent.

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Aryn Bates, CPRIA, CAPI, is a personal risk advisor with USI. With 12 years of consulting on risk management for successful families, Aryn teaches CE for CFP^®, CLE, and CPE designations, and is a board member of the Columbus FPA.

image credit: istock.com/RobertCrum