This morning I read a story about a woman who hit a bicyclist in an auto accident June 27, 2013. The bicyclist was badly injured. Today the woman is closing out bank savings, her 401k and IRA - she has to give the money from these accounts to the bicyclist. After today, she will have zero saved for retirement and nothing in savings....she starts over at 46 years old. She is short about $255,000 (auto policy paid $100,000 and she had $280,000 in savings and retirement accounts), but settlement is $635,000.
The woman’s auto policy with $100,000/$300,000 liability paid the max of $100,000 (this is the per person limit). But the medical bills, loss of wages (past/future), permanent injury to knee and such resulted in a $635,000 award to bicyclist.
Today she is setting up court ordered wage garnishment with her employer. She is embarrassed to go to her HR department for this, but has to. She will have large monthly payments taken from paycheck until the remaining debt is paid. If she gets a bonus, gets an inheritance, wins at gambling or whatever, these get taken. Only when the debt of $255,000 is paid will she have extra money. Filing bankruptcy isn't an option, it isn't allowed when a personal injury judgement is involved - this is a debt that can't be dismissed in bankruptcy.
So why am I posting this story on Facebook? You need to take a look at your auto policy today. What are the limits? If they are $100,000/$300,000 or less, call your agent and ask for an increase to the max they offer. Then buy a $1M umbrella - it won't be more than $150 or $200 depending on how many drivers and cars you have.
I know it seems tempting to choose a lower deductible. But lower deductibles can actually end up costing you plenty. The old saying of PAY NOW or PAY LATER applies to your auto insurance. Better to spend a little more each year in premium - maybe a few hundred dollars - than to spend a lot more later - like hundreds of thousands - out of your own pocket by emptying your savings, retirement, investments and any equity you might have in a home."
Suze Orman