The Cost of Liability

Whenever the Chamber of Commerce or the insurance industry wish to take a cheap shot at injured people or their rights, someone typically invokes the cost of liability insurance coverage.  It is extremely common for insurers to invoke this bogeyman when consumer groups or legislators question the cost of insurance coverage.  In fact, the number of liability claims in Michigan, per capita, is down substantially since 1990, but the cost of liability insurance has continued to rise.  The New York Times recently reported that several of the largest insurers are recording record profits, some approaching 30 percent, per year.

Most people have no idea who to believe in these matters. There is one simple test for Michigan residents, though, that may help to demonstrate where your insurance money goes.  Whenever you buy or renew an auto policy, you receive a Declaration Page.  This page shows what coverages you have purchased and what each of those coverages costs you for the coverage period.  If you examine that Dec Sheet--and the two or three you received immediately before--you will be startled by what you learn.

In the case of most car owners, about two-thirds of their auto insurance premium is related to the cost of potentially replacing the vehicle. Collision and comprehensive coverage for $20-60,000.00 vehicles is prohibitively expensive, especially when they contain expensive electronic parts and are made of plastic and fiberglass [and probably overseas].  Of the remaining one-third of your premium cost, for most insureds three-fourths of that cost is related to ordinary medical and catastrophic medical coverage or potential wage loss.  For the average owner/driver, only a very small part of Michigan's mandatory auto insurance coverage is attributable to liability exposure.

Another proof of the proportionate cost of liability coverage is the relative cheapness of uninsured and underinsured motorist coverage.  These are coverages an owner/insured can purchase to protect his family in the event a family member is injured by a person who has not purchased adequate liability coverage.  In most cases, adding this coverage to an existing policy costs less than $50.00 per coverage period:  far less than the cost of collision or medical coverage.