Insurance is about balancing risks. It’s also about making the decision to pay a little now to keep from having to pay a lot later. The decision of how much auto coverage you need begins with a few questions:
- How much insurance are you required to have?
- How much insurance are you likely to need if you have an accident?
- How much insurance can you reasonably afford?
It’s always good to start finding answers to these important questions by having a discussion with your independent insurance agent.
What’s Required and What’s Not?
Your car insurance is actually a collection of several types of coverage: liability (including property damage and bodily injury for others), personal injury protection for you and your passengers, collision coverage, comprehensive coverage, and uninsured/under-insured motorist coverage.
Liability insurance is required in every state (plus the District of Columbia) except New Hampshire. Currently, 16 states (plus D.C.) require personal injury protection, and many also require uninsured motorist and/or under-insured motorist coverage.
No states currently require drivers to carry collision or comprehensive coverage on their vehicles.
Minimums Just Aren’t Enough
Every state has coverage minimums, and they’re usually expressed in an A/B/C format. In this formula, A is the required coverage per person injured in an accident, B is the total coverage for all people injured in an accident, and C is the coverage for property damage. You can see an updated list of all state minimums here. The state minimums vary widely, from 10/20/10 in California ($10,000 per individual, $20,000 per accident, $10,000 property damage) to 50/100/25 in Alaska and Maine ($50,000 per individual, $100,000 per accident, $25,000 property damage).
If you can do basic math, you’ll see that state minimums are inadequate. If you cause an accident in California and you’re carrying just the minimum of $10,000 in property damage coverage, virtually every new car (and even most used cars) on the road would exceed the limits of your coverage. If you total a $40,000 car with only $10,000 of coverage, you’ll be personally on the hook for the $30,000 that your insurance policy doesn’t cover.
And that’s just the property damage. Bodily injury claims can really add up. You have to consider the costs of ambulances and paramedics, hospital and medical bills, rehabilitation, and other factors. Medical evacuation for just a single person, if required, can total well over $50,000. Things can get even messier if the person or people you injure retain the services of a personal injury lawyer.
Consider Your Assets
Consider what would happen if you’re responsible for a serious crash in which several people are hurt and at least one car is totaled. Damages from such an accident could easily total $100,000. Most state minimum policies are simply inadequate in the aftermath of a severe accident.
If you don’t earn much and don’t have anything in the way of property, you aren’t likely to be sued if your insurance doesn’t cover the bills for an accident you caused. Actually, the costs will likely be paid for by the other party’s under-insured motorist coverage.
For most people, however, the economic impact of an accident with insufficient insurance coverage can be catastrophic. It’s not uncommon for drivers to have their wages garnished, retirement accounts plundered, and home equity taken. People lose their homes over auto accidents. People go bankrupt. But with enough insurance, they don’t have to.
Most experienced insurance agents recommend that everyone buy a policy that provides coverage of at least $100,000 per person, $300,000 per accident. In addition, the usual suggestion is for drivers to carry at least $100,000 for property damage. The 100/300/100 standard is generally acknowledged within the insurance industry as the real-world “minimum”—regardless of what your particular state says the minimum should be.
Some people don’t want to carry that much coverage, and that’s their right. Many insurance agents prefer not to write a policy for less, because they feel that to do so would essentially be “insurance malpractice.” Others will write a “state minimum” policy, but only after a customer signs a waiver indicating that he or she was offered more coverage but turned it down.
Your best bet is to have your independent agent provide multiple quotes in multiple ranges, from multiple insurance companies. You may be surprised to see how affordable the higher levels of coverage actually are. Most importantly, this thinking needs to happen beforehand, instead of in the aftermath of an accident. Nobody ever walked away from an accident and thought, “Wow, I wish I didn’t have so much insurance coverage.”