Here is a question I received that I think more people are wondering about and may not have had the opportunity to ask in class. Quite honestly I didn't have the answer either but suspected Jennifer was getting bad advice. I thought No Fault limited property damage and liability coverage but would have been parading my ignorance to try to answer. So I asked the expert, Kim Bergstrom who provides KCC's coverage as well as our personal insurance coverages. Here is the question and what she had to say.
Question - I am trying to go through the insurance portion of this class and make sure that we are covered as he suggested. Yet, as I am doing this I have people telling me that because we are a no fault state that increasing the liability on the auto insurance is a waste of money because it covers our car not the other car. I am so confused about insurance that I may as well be reading German :). Would you suggest still following Dave's advise in increasing liability to 500,000? Thank you Jennifer L.
Answer - Hi Dave, It is confusing! Michigan is a no fault State, and you're right, it mostly applies to the coverage for physical damage to your vehicle but it also applies to damages for minor injuries. In these cases, each person mostly goes to their own auto insurance carrier for coverage.
There are some exceptions that apply to the physical damage coverage, but they are all addressed by coverages (PPI and Limited Property Damage Liability) that are on all auto insurance policies, so I’m only going to address the exceptions to the bodily injury liability coverage. By the way, I agree with Dave that it is a really good idea to increase your liability limits to at least $500,000:
1. If you make a mistake while driving and cause an accident in which someone is seriously injured you can still be sued and held responsible for damages as a result of pain and suffering, loss of consortium and wage loss beyond the 3 years the PIP coverage provides. Currently the law says to be able to recover damages from an at fault driver/vehicle owner you must meet one of the three following thresholds:
- Scarring or disfigurement
- Serious impairment of a bodily function. (This is open to interpretation and highly litigated.)
You always risk the possibility of someone suing you and being awarded damages that are more than your policy liability limits. In that case you could be required to pay the additional amount from your personal assets. Higher liability limits increase the protection of your personal assets.
2. By having the higher liability limits you can also purchase matching limits for uninsured/underinsured motorist coverage. This protects you and your family members for injuries you sustain by a driver who either has no insurance or is driving with lower limits than you have.
Claim Examples with $500,000 Uninsured/Underinsured motorist limits:
- Let's say you or a resident relative are seriously injured as a result of someone else's negligent driving and have a claim that is worth $300,000. If the at fault driver/vehicle owner didn't have any insurance, you would be able to make an uninsured motorist claim against your own insurance company and receive the $300,000 compensation from them. They would pursue reimbursement from the uninsured at fault driver/vehicle owner, but he/she probably doesn’t have assets, but that makes it the insurance company’s problem and not yours.
Same scenario as above, but the at fault driver/vehicle owner is driving with the minimum liability limits required in Michigan of $20,000/person and $40,000/accident. Their insurance company would cut you a check for $20,000 and tell you to try to recover the additional $280,000 from their insured who likely doesn’t have any assets either. You would be able to collect the $280,000 from your insurance company under the Underinsured Motorist coverage and again, it would be their responsibility to try to recover from the at fault driver/vehicle owner.
I hope you find this helpful. Please let me know if you have additional questions or if I can be of any other service to you.
Ok friends and FPU Peeps. Here is a story for ya. I've had a task on my list for a number of months now "Check Annual Credit". It kept getting forwarded and the other morning was the day I set aside the time to check it off the list. So I ran a report from 1 of the 3 agencies for my wife and I. I only ran 1 so I had the option to re-run it later if I needed to dispute anything and wanted to check if the change was made later.
I was reviewing my report and low and behold and open credit card! How could this be? I looked at the card issuer and the account number are realized it was a card associated with my Mom's account. When my Dad, I still miss him a bunch, passed back in February I was added as the joint party on their old join bank account. This allowed me to help with bill payment and banking stuff. What I didn't expect was their credit card now became MY credit card, YUCK.
I touched base with Mom and she agreed to close it. Here is the initial response I received from the credit union in regards to the request to close. I figured you guys would get a kick out out of it! Thank you for contacting XXXX Federal Credit Union. If you would like to close your Visa Platinum Plus we can certainly do this for you, but we wanted to take a moment to discuss a few key things that may affect your decision. By closing a long standing line of credit, it could hurt your credit scores and make them lower. There are two major items that are looked for on your credit history, the first is payment history and the second is the length of time your accounts have been opened. Additionally, another one of the things that is looked for on your credit report is the amount of revolving balances that you have available to spend. By leaving this card open with no balance, it could help keep your scores up because it will supply a larger amount of availability. If you would still like to proceed with closing your card we can do this, but we just wanted to let you know how it may affect your credit. As always, please let us know if you have any questions or if we can assist you further. We are always happy to help. Thank you and have a great day!
I've had to make a few calls and emails at this point to get it closed. My Mom even got the speech above about "this is not a good idea".
I am a huge fan of envelopes. They work really well and, I believe, are the single most effective tool to execute your personal budget. Cash envelopes add the emotional element to buying something and really make you think about the opportunity cost of a purchase.
Our personal envelope process has evolved over the years. In addition to the stable Cash Envelope we added 2 Electronic Envelopes. These help us automate and simplify this process. We just got done using the Allocated Spending Plan form to craft our cash flow strategy till the next payday.
Below is a summary of how we are using Envelopes as part of our budget. There are a million ways to do this. I'd love to hear what works for you. Post a comment or use the contact us form. thx for reading.
I spent a few hours this weekend catching up on my reading. Here are a few articles that supplement some of the material we have been covering in our class.
From the December 2013 Kiplinger's Magazine - Make Long-Term Care More Affordable.
From the November 2013 Money Magazine - Health Insurance Planning Update
From the November 2013 Money Magazine - Strategies for Money Conversations with an Ex Spouse
From the December 2013 Kiplinger's Magazine - Mobile Phone Etiquette
Kiplinger's "Best of" Annual Article selected highlights
Target Date Funds - Vanguard Funds have beaten their peers over the long haul and charge the industry's lowest fees.
Interested in a Fee Based financial advice? Check out the Garrett Planning Network
Interested in Credit Monitoring? Kiplinger's recommends - ITAC Sentinel Plus
Have student loans? Keep track of them here and pay them off sooner here - Tuition.IO
The current highest paying online bank - GE Capital
Dave Smith is part of the KCC finance staff and a Dave Ramsey Certified Coach.