It's a nightmare scenario no one likes to think about: You or someone in your family hurts or kills someone while driving your car. The injured person even could be someone in your car -- a friend or family member.
If you think this can't happen to you, you're wrong. Nearly 34,000 people died in car crashes in 2009, according to the Insurance Institute for Highway Safety. That same year, more than 2.6 million Americans were treated for non-fatal injuries in car crashes, according to the National Center for Injury Prevention and Control.
For families facing this tragedy, there are many pressing questions, such as What happens next? Who will pay for medical or funeral expenses? Will my insurance rates go up?
The answers hinge on a few key facts, including:
1. Whether you had auto insurance at the time of the crash.
2. If you had auto insurance, what types and levels of coverage you had.
3. The state where you live and your insurance company's own rules and regulations.
4. The amount of expenses or income loss your crash caused.
5. Whether you have valuable personal assets besides your home.
"Depending on the situation, you can get lucky and not much happens to you," says personal injury lawyer Elliot Olsen, a partner at Minneapolis law firm Pritzker Olsen. "Or it can make your life absolutely miserable."
Even if you are a careful driver, you and your family could end up responsible for a devastating crash, says Thomas Layman, automotive division claims manager at GMAC Insurance. That's because most insurance policies encompass any immediate family members who live with you.
Consider the case of a farm family whose 16-year-old son was texting while driving the family car. The teen struck and seriously injured two people riding a motorcycle. The injured pair in this case hired Olsen to sue the farm couple for damages. The farmers had little insurance coverage, and now their farm and their livelihood are at risk.
When you have no insurance
It's a common misperception that nearly every American has auto insurance. The Insurance Research Council forecast recently that the number of uninsured motorists would rise from 13.8 percent in 2007 to more than 16 percent in 2010.
If you have no auto insurance and a member of your household causes a crash, one of two things will happen.
If you have no meaningful personal assets -- you rent an apartment and drive a junker -- it's likely the injured person or their family will look to their own insurance policy to pay for medical or funeral costs, GMAC's Layman says. If the injured person or the family also don't have insurance, they're likely out of luck, he says.
On the other hand, if you have assets beyond your residence -- for example, a boat, valuable artwork or a vacation cabin -- you may well be sued and have to forfeit those assets to help compensate the injured person, says Olsen, the attorney.
When you're underinsured
Many people have auto insurance, but have only the lowest coverage amounts allowed under state law. If you cause a major crash, this will come back to bite you.
"I had one case of a doctor who was woefully underinsured," Olsen says. "His son was driving and caused a serious injury. The doctor came up with $300,000 of his own money to settle the case."
What happens to your insurance premiums
It's a quirk of the insurance industry, but if you cause a serious accident and it's your first one, your auto insurance rates may not go up, GMAC's Layman says. Some insurers have a first-accident forgiveness provision and don't change your rates.
Other insurance companies work on a "point" system, and will assign the crash a number of points depending on the circumstances and payout costs of the damages you caused. If alcohol was involved in the crash or it's not your first crash, your rates could skyrocket.
If you are sued
If you have auto insurance, your insurer will work with the injured person or the family to settle a claim. The insurance company's attorneys will make a settlement offer, up to the coverage limit in your policy.
"It's actually very common to have these types of claims settled out of court," Allstate spokeswoman Christina Loznicka says.
But the injured party may reject your insurer's offer and decide to sue you for more money. In this case, the insurance company usually is obligated to represent you in court -- but that obligation relates only to the coverage amount in your policy.
Because of this limitation, policyholders often have a private lawyer assist them as well, says personal injury attorney Oliver Pelly, a partner at Phillips & Pelly in San Diego. The associated legal costs can be substantial.
"You should insure yourself to the extent of your worth," Pelly says.
Having enough insurance
To make sure you're fully protected financially from the aftermath of a crash involving injury or death, take out an additional policy known in the industry as "umbrella" insurance, attorney Olsen says.
An umbrella policy provides uninsured and underinsured motorist coverage, as well as general liability coverage, and protects you for costs beyond the limits of your auto insurance policy. Umbrella coverage is low-cost -- Olsen's own umbrella policy costs just $400 a year. In his opinion, it's a superb bargain.
"You're buying peace of mind," Olsen says.