Auto Insurance State Minimums Why Avoid it

Monday, April 1, 2013

Auto Insurance State Minimums Why Avoid it

In the US, the insurance industry is regulated at the State level, which means every State can have its own guidelines to how insurance is bought, sold and primarily used. One of the most forward-facing regulations that each State must have is the minimum liability insurance requirement each driver must have in order to operate a motor vehicle on public roads. This amount is referred to as the “State Minimum Liability Insurance Requirement.”

Image credit: kurhan / 123RF Stock Photo 

State Minimum Liability Insurance Explained

Insurance comes in different forms, and when it comes to car insurance the different types are called liability, comprehensive and collision. Liability is what we will be discussing in this post.

Liability insurance protects the policyholder (usually the driver) in the event, they are in a wreck and determined to be at fault. The liability portion of their insurance policy would pay for damages to other parties involved in the accident up to the stated amount.

Each State has its own requirement for the minimum amount of liability insurance a driver must have. For example, California’s minimum requirements look like this:

  • $15,000 for injury or death to one person.
  • $30,000 for injury or death to more than one person.
  • $5,000 for damage to property.

Source – DMV.CA.GOV

Liability Insurance Categories Defined

Now let us take a look at what each of these categories actually covers:

Injury or death to one person – This amount is the maximum the insurance company will pay for medical bills for one person. If the individual dies, this is also the most, the company is expected to pay if the surviving family sues the policyholder.

Injury or death to more than one person – This is a combined total the insurance company will pay for injuries or death for the entire accident. If the policyholder hit a school bus with 50 kids, and each one had $1,000 worth of medical bills, the insurance company would only pay up to $30,000.

Damage to property – This is how much the insurance carrier will fork over for damage done to just about anything that is not a person. That could be another car, a mailbox, the side of a house, or even a city light pole. If it does not fall under the first two categories, it more than likely fits here.

What Happens When You Are Underinsured?

Here is an example why it is not a good idea to carry state minimums. Let’s say a driver in California has a policy with the above-listed state minimums. This driver runs into a minivan that has two adults and four kids in it. All four kids and the adults need medical care that costs $10,000 each. In addition, the newer minivan is totalled, and the replacement cost is about $20,000.

For simplicity purposes, we are using whole numbers to make the math easy.

Luckily, each of the personal injuries fell under the maximum $15,000 per person, but the total gross cost is $60,000, which is $30,000 more than the insurance company will pay for. The $5,000 value of property damage will go towards the replacement of the minivan, but, unfortunately, that is $15,000 less than what it will actually cost.

In the end, this driver will be on the hook for $45,000 (plus their deductible). This is, in addition to what the insurance, company is going to pay.

The moral of the story is that auto insurance is not the place to cut corners and save a few dollars. Most drivers can double, triple, or even quadruple their protection for a few more dollars each term. If you are driving with State minimum coverage, now is the time to recheck your policy.

About the author-

Eric Stauffer is a former agent and currently reviews companies like AllState Insurance. His website helps families to find the best insurance coverage to protect their assets and shows them where the first place is to get it.


Unknown said...

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Anonymous said...

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