During every sporting event, there are plenty of ads on TV touting the latest online auto insurance company. Each offers online quoting, low down payments and state minimum auto insurance.
Those all sound great, but are they? Remember that old adage that “you get what you pay for”?
Let’s talk more about state minimum auto insurance.
What is State Minimum Auto Insurance?
Nearly every state requires that drivers have insurance or financial responsibility in order to drive a vehicle. Since insurance is mandatory, states have established state minimum auto insurance requirements for drivers.
State minimum auto insurance limits are the minimum amount of liability insurance (both bodily injury liability and property damage liability) that the state requires for a driver to be “legal” to drive. These limits vary from state to state. Below are some examples:
$15,000 bodily injury liability per person
$30,000 bodily injury liability per accident
$5,000 property damage liability per accident
$10,000 property damage liability per accident
$10,000 personal injury protection
Here is a handy guide to the websites and information for state minimum auto insurance requirements by state.
What Isn’t Required As State Minimum?
State laws require only that drivers have minimum liability insurance limits for bodily injury and property damage. Still others require minimum limits of personal injury protection for insured drivers and their passengers.
What usually isn’t required is coverage for comprehensive and collision damage (also known as “full coverage”) or uninsured/underinsured motorist coverage, towing & labor, or rental reimbursement.
Should You Purchase State Minimum Auto Insurance?
As a law, you MUST purchase at least the state minimum in order to legally drive in most states. This is the amount that satisfies your state department of motor vehicles.
However, most insurance brokers will tell you that state minimum auto insurance is not enough and that purchasing only the minimum exposes you to just as much risk as going without insurance.
Let’s look at an example:
In California, you have purchased a state minimum policy with limits of $15,000 bodily injury liability per person, $30,000 bodily injury liability per accident, and $5,000 property damage liability per accident.
You are approaching a green light just as it turns yellow. You anticipate being able to get through the light but the car in front of you, a 2016 Ford Taurus (used in good condition value according to kbb.com is around $13,000) stops instead of speeding through the light like you intended to do. You hit the back of the stopped car doing about 45 mph. The car has a mom and her two children in it, on their way to school. They do not have medical insurance.
All three occupants of her vehicle were transported to the hospital by ambulance. The Taurus is totaled, not to mention the damage to your vehicle and your own injuries.
How are those minimum limits going to work for you? The $5,000 in property damage liability per accident won’t cover the cost of replacing the other driver’s vehicle. There is $15,000 in bodily injury liability for each person in her vehicle, up to a limit of $30,000 per accident. With three occupants, 3 emergency room visits including transport by ambulance will exceed that limit quite easily.
Once the other driver lawyers up, you’re going to be looking at quite a lot out of pocket, and your state minimum auto insurance policy limits have been exhausted. Now what? You will end up paying for your own lawyer and any court awards for the accident that you caused. You’re also on the hook for replacing your own vehicle and hopefully, your injuries aren’t enough to keep you out of work for too long.
This is the reality of state minimum auto insurance. It’s enough to satisfy the state, but not enough to cover a fairly common accident.
How Much Insurance Should You Buy?
The rule of thumb for purchasing insurance is that you should always buy as much insurance as you can reasonably afford, but how much is that? Like compensation, this amount varies from person to person.
Here is what you should take into account when purchasing auto insurance:
- What are the state minimum requirements?
- Do you have a lienholder? How much insurance do they require for both liability and full coverage?
- Do you live in an area where there are a lot of high-value vehicles and property around? In the event you could have an accident with a high-value vehicle, higher limits of insurance should be considered.
- Do you live in an area where there are a lot of low income or uninsured individuals? Uninsured and/or underinsured motorist coverage should always be considered, especially in areas where others may not necessarily purchase coverage.
- How much personal responsibility are you willing to shoulder for the costs related to an auto accident in which you are involved?
Depending on the circumstances of an auto accident, the damage and medical expenses may exceed state minimum limits. Add in legal fees and you could be facing a huge bill when it is all said and done.
When purchasing auto insurance, talk to your broker about the cost to insure beyond state minimums. The premium will be higher, but the peace of mind will be greater.