How do I know if liability-only auto insurance is right for me?

How do I know if liability-only auto insurance is right for me? A great question. The answer lies somewhere between a matter of preference and mathematics. In other words, there are subjective and goal means to see if liability-only coverage is right for you.

MATHEMATICS: Here’s a couple of geeky, yet goal formulas that may help with the decision.

Auto insurance

Formula #1: X / Y = Z

Where X = Vehicle’s Value, Y = Cost of physical damage coverage (comprehensive and collision), and Z = the number of years the cost of physical damage coverage would equal the value of the vehicle.

Example:

(X) Vehicle Value = $5,000 (divided by)

(Y) Cost of Comprehensive & Collision = $500 (equals)

(Z) Number of Years the cost of coverage equals the value of the vehicle = 10 years

Comparing (Z) to the average number of years a driver has a physical damage claim may help make this an easier decision. That average is once every 10 year

If the number of years for (Z) is much greater than 10, the less cost there is to transfer that risk to the insurance company and the more sense it makes to keep physical damage coverage.

If the number of years for (Z) is much less than 10, the cost to transfer the risk of loss is much higher and so less likely physical damage coverage is attractive.

Formula #2: A - X = B

Where A = your total Short-Term Savings, X = Vehicle’s Value, and B = what’s left of your Short-Term Savings after you replace your current car with one of similar value.

If “B” is a negative number, liability-only auto insurance probably isn’t for you.

If “B” is a strong positive number, liability-only may be an option.

Consider not only the cost of replacing your current vehicle but also the cost of replacing your current vehicle with something that is a practical option. That practical option may cost more than your current vehicle is worth.

Preference -

Do I want to put my savings at risk to repair and potentially replace my vehicle?

Going through the geeky calculations above may not be your thing. Or - you feel like you don’t want to take the chance of absorbing the cost of replacing/repairing my car in the event of a large loss. That’s fine and reasonable deliberation.

There’s no right or wrong answer to the liability-only auto insurance question. If the math makes sense, it is worth consideration.

If the math doesn’t make sense, maybe it’s time to talk to your agent or representative about options such as

Higher Deductibles

Comprehensive

Only (No Collision)

How do I know if liability-only auto insurance is right for me? Regardless, liability-only coverage is right for you only if it makes financial sense and you feel comfortable with the decision.

Can I get an explanation of this statement: “You don't need tail insurance coverage because you will be getting occurrence-based malpractice insurance”? Is this entirely true?

TLDNR: It is accurate, but at least one case where not. Property and Casualty insurance policies can be broken down into two broad classes of coverage: Occurrence and Claims Made.

The VAST majority of insurance policies are all home & car, most business policies are sold on an Occurrence basis. A few policies covering complex or long-tail liability exposures are written and sold on a claims-made basis.

The difference is that the insurance policy responds based upon whether occurrence or claims are made. An occurrence policy will pay if the claim occurred when the insurance policy covered the risk. A claims-made policy will only cover if the claim occurred and was reported (the claim was made) while the policy was in force.

With a property claim, you generally know immediately that a loss has occurred. A business owner drives to work in the morning and her building has burned. She is aware and files a claim. Knowledge of a liability claim can be immediate, like when a car hits a house.

The driver of the car has caused damage to the house (liability) and his insurance should cover the damages.

Some liability claims happen, but take a while to become obvious and for the claim to be presented. Let’s look at insurance on an Occurrence basis:

Auto insurance

For example, on December 1 a pedestrian slips and falls on a wet floor in a store. He thinks he is ok, declines help from the employees, and go home. But the problem doesn’t go away, and after a few months goes to the doctor who identifies serious injuries. He then presents a claim to the store on March 1 of the following year.

The store’s insurance policy was renewed on January 1, and the store owner switched from Insurance Company A to Insurance Company Z. Because the claim OCCURRED on December 1, when the insurance was with Company A, it is Company A’s loss to adjust and pay. Claims Made: (Remember, both accident and claim must be made during the policy term for the insurance to respond).

Now if policy A was written on a claims-made basis, then Company A does not have to respond, because the claim was not made while Company A was the insurer. Meanwhile, Company Z doesn’t have to pay, because the claim occurred before Company Z insured the property. In this instance, the store owner has no insurance for the slip and fall.

The solution is to buy a tail policy for Insurance Company A which extends the reporting period for claims after the policy has expired.

So, if you have a claims-made policy now, and you are purchasing an occurrence policy, you should buy tail coverage. If you have never had a claims-made policy, then you do NOT need to buy a tail cover.

Thanks for the opportunity to answer an ‘insurance geek’ question.

Why doesn’t the startup of Y Combinator build their own insurance, healthcare, and manage them as a startup?

They have. Y Combinator funds life sciences companies, close to 350 as of winter 2021. Most are deep tech, things like therapeutics, drug, and organic synthesis, infrastructure, devices, diagnostics, genomics, health finance, records and compliance, data and analytics, and intellectual property. A handful is packaging or otherwise delivering health care to patients and their employers.

Among them Angle Health

Auto insurance

One of my portfolio companies from Y Combinator’s winter 2020 cohort, is a tech-enabled healthcare platform that offers health insurance plans to startups. there are a couple of others also selling health insurance plans.

What you don’t see are:

Hospital buildings, doctors, and nurses – unlike the high-growth companies Y Combinator and others in the venture industry can support, these are capital intensive, not scalable, and have a years-long lead time. Y Combinator would not have any particular advantage producing companies to build and run hospitals or to educate and hire medical staff. Instead, they graduate companies that make these services more efficient and effective.

Y Combinator doing business. Y Combinator’s business is to make investments and also to run business acceleration programs, not to start its own businesses. But, many of the Y Combinator companies do business with each other, and with the wider startup ecosystem. If you put all the YC healthcare companies together you could cobble together an entire health care system, everything but the doctors and the hospitals.

(Source of the article: www.quora.com)