I have had too many tragic cases come into my office that I feel compelled to write to ask that you please carefully review and consider your life insurance and auto accident insurance limits. The following scenarios and information are representative of the issues that cause me concern.
Here is the short version of the story. Young married couple, two-income family with small children. Both parents’ earnings were likely to increase as they advanced in their careers. They had minimal life insurance because both parents are young and healthy. $100,000 limits on uninsured/underinsured motorist coverage on their auto policy. They live a comfortable lifestyle and are careful with their money. One of the expenses they try to save on is their insurance costs.
The story has two basic variations. In the first variation, one of the parents dies unexpectedly. The minimal life insurance is all that is left for the family. The other variation has one spouse killed in a motor vehicle accident. The “at fault” driver has either no auto insurance or the state of Iowa minimum required limits. ($20,000.00) The defendant driver has no other assets that can be collected to pay for the financial losses that have occurred. In either scenario, the life insurance and auto insurance are the only practical sources of money to provide for the family.
In either event, this two-income family that was comfortable is now forced to try and survive on one income. The chores that were shared by two are now the sole responsibility of the surviving parent. That parent can either do the chores themselves or hire the work done. Neither choice is good from either a time or money point of view.
Here is the rest of the economic reality for the survivors. There will be social security for the children, but it will not fully replace the deceased parent’s earnings, nor will it cover the cost of the daily chores they provided for the family. The social security benefits will not significantly increase to match the deceased person’s future increased earnings. There will be no accumulation to the deceased person’s pension or other retirement savings.
The life insurance will be paid in a relatively short amount of time. It is not uncommon for that policy to have a payout of either $10,000.00 or $20,000 if it is an employer-sponsored plan.The auto insurance payout from the defendant driver will be $20,000.00 if they have the minimum required by state law. The survivors would have a claim for uninsured or underinsured benefits under their own policy. The maximum payout will be listed on your
policy declaration page. For example, if your underinsured motorist coverage is $100,000.00 that is the maximum payable from that policy.
From either the life insurance or underinsured/uninsured motorist payments it would be necessary to pay medical bills, funeral bills and other expenses. The remaining funds will be the entire amount available to replace the income and services that would have been provided by the deceased parent.
If there is any dispute about responsibility in the event of an accident and there is a need to hire a lawyer, there may well be several years delay until recovery. Legal fees, expert witness fees and other costs are associated with any litigation. Those costs reduce the amount available for the surviving family.
There are other harsh realities that must be faced by these families. If the decedent was the major cause of the auto accident, then only the life insurance will be paid. If the decedent was determined to have any fault in the accident, then the auto insurance payout from the other party would be reduced by his allocated percentage of fault. For example, if they are determined to be 30% at fault, then there will be a 30% reduction in the payment from the “at fault” driver. If they are determined to be at or over 51% at fault, then there will be no auto insurance proceeds.
Finally, consider that the auto accident scenario concerns a death. It does not take into account the expenses that can accrue in the event someone is severely injured. The financial reality is that the expenses for caring for a decedent stop with the funeral. However, when a person is severely injured, they may have ongoing medical expenses and personal care expenses that may be needed for the rest of their life.
I sincerely hope that this never happens to you, your friends or your family. If we are honest with ourselves, we recognize that these unfortunate and unpredictable events do occur. As responsible adults, we know that these events can and do happen. We cannot control whether the other drivers on the road have adequate insurance. (The next time you drive down the interstate, do an honest “guestimate” of how many of the drivers around you have enough insurance to fully pay for injuries that they may cause.) We cannot control how much life insurance our employers provide. However, we can control and make sure that we have enough life insurance to protect our family. We also can make sure that we have adequate auto insurance limits—including uninsured and underinsured as well as an umbrella policy—to protect our families and us.
If you have questions, please contact your professional advisors, including your attorney for further information.
Steven E. Howes