What does automobile insurance have to do with bankruptcy? Not having adequate automobile insurance or being unfamiliar with your existing insurance can create significant financial problems. These financial problems can in turn lead to a bankruptcy filing.

The first reason is basic, but still needs to be addressed. At a minimum, you must have liability insurance to operate a vehicle in Georgia, or any other state. Too often people try to save money by driving without insurance. Or they may have insurance coverage cancelled for non-payment, which makes it more difficult – and expensive – to obtain replacement coverage. Speeding tickets, DUI’s, previous at-fault collisions and other traffic charges may increase insurance costs beyond affordability for even those with above-average income. Adding criminal fines and court costs will place almost any budget in jeopardy. And you could risk the suspension of your license, which could prevent you from reliably getting back and forth to your employment.

New automobile inventory is increasing but is a long way from approaching pre—Covid levels. As a result, prices for new and used vehicles are much higher. Many car owners are unaware of the value of their vehicle so they opt to save money by only purchasing liability insurance. If a consumer has a car that is paid for but only purchases liability insurance, and then the car is totaled in an at-fault or no-fault accident, they will not receive any insurance proceeds to cover the value of their lost vehicle.  Unless they have savings, this means that they will have no funds to pay cash for a replacement vehicle or make a significant down payment on a vehicle to be financed. Given the urgency of obtaining replacement transportation, they may end up financing a less-than-desirable vehicle at a high interest rate. By having to purchase a replacement vehicle out of immediate necessity, the consumer winds up with a vehicle payment that they did not previously have, along with increased insurance since the new vehicle will presumably be more valuable than the vehicle that was lost. This in turn leads to a deficiency in an otherwise manageable budget.

Even a consumer who has liability insurance and is found to be at fault in a motor vehicle collision could still find that they do not have adequate liability insurance coverage. The minimum liability coverage in Georgia is $25,000 for bodily injury ($50,000 per incident) and $25,000 for property damage. With the increased cost of motor vehicles, it is entirely possible that $25,000 of property damage coverage would be insufficient to compensate an accident victim for the loss of their vehicle. It would probably be a wise move to increase the insurance coverage to at least $50,000 for bodily injury/property damage at a minimum. Your insurance agent may recommend an even higher amount of coverage. Having insufficient coverage may put your income and other assets at risk in the event of a catastrophic claim that exceeds your minimum coverage.

However, even a vehicle owner who has full coverage insurance could have their claim denied if the vehicle was not being driven by an authorized operator or was being used in gig work (Uber, Lyft, Doordash, etc.) that was not disclosed when the policy was obtained. If you have children or other household members who routinely use the vehicle, you need to make sure that their operation will be covered under your existing insurance coverage. A motor vehicle operator who allows somebody who is excluded from their policy to operate a vehicle will be personally responsible for any harm that is caused to a collision victim. While that victim may have uninsured motorist coverage which will compensate them for their property damage and injuries, that insurance company will have the right to sue the vehicle owner in order to be reimbursed for the money that they paid to their policyholder/victim. The responsible party can have their wages garnished to satisfy this judgment. . In addition, the vehicle owner in that instance can also have their license suspended until such time as the insurance judgment is paid. The license suspension will jeopardize their ability to work if they are employed outside the home.

Even a vehicle owner who has obtained full coverage insurance with adequate limits of protection can still find themselves in a financial pinch if their vehicle is damaged or totaled by a driver who does not have liability insurance. At Leiden and Leiden, we have seen a significant increase in individuals who have been harmed by the negligence of other drivers who were not covered by insurance. In that instance, the victim will be responsible for all of their medical expenses, as well as the cost of vehicle repair/replacement. For this reason, our office always recommends that a vehicle owner obtain uninsured/underinsured motorist coverage in addition to their existing liability coverage. The limits for uninsured/underinsured motorist coverage cannot exceed the limits of liability coverage so if you are driving a vehicle worth more than $25,000, you would definitely want to select a higher limit for your liability coverage to protect yourself. Your insurance agent should be able to make recommendations regarding the necessity of uninsured/underinsured motorist coverage.

So what should you take away from this article?

  • Protect others – Make sure that you have adequate liability coverage to protect yourself and anyone that you or the operator of your vehicle may injure in the event of an act – fault collision. The minimum limits required by the state may not adequately compensate someone injured by your negligence, or the negligence of somebody operating your vehicle. Ask your insurance agent what they would recommend as sufficient coverage to make sure that any victims of negligence are likely to be fully compensated for any personal injuries and/or property damage.
  • Protect yourself – Only allow authorized operators to use your vehicle. If you are using your vehicle for gig work, this must be disclosed to your insurance company. Even if you have adequate insurance coverage, any use of the vehicle by persons not covered under the policy, or for purposes not covered under the policy, may not be covered, leaving you personally responsible. Also obtain uninsured/underinsured motorist coverage so that you can protect yourself and any occupants from damage caused by uninsured/uninsured motor vehicle operators.