When Your State’s Auto Insurance Minimums Are Not Enough
Minimum Auto Insurance Coverage: When Saving Money Can Cost You
Today, everyone is looking for ways to save money. From clipping coupons to eating at home more often, people are more concerned with spending less money.
However, one area where people should not penny-pinch is their auto insurance coverage.
Many drivers might consider paying only for their states’ minimum coverage; after all, it’s what the law requires – it should be enough, many people assume.
This assumption, however, could result a legal nightmare, especially for those who own considerable assets they wish to protect.
What are State Auto Insurance Minimums
Surprisingly, many drivers are unaware what auto insurance liability minimums even are and how they relate to what you could have to pay out of pocket if you are in a car accident.
Most states require drivers to carry a minimum level of liability insurance, with minimum liability limits ranging from 12.5/25/7.5 in Ohio to 50/100/25 in Alaska.
The three numbers represent how much an insurance policy would cover if the policy holder is found to be at fault for an accident:
- The first number represents the bodily injury liability maximum for one person injured in a single accident.
- The second number represents the bodily injury liability maximum for all injured persons in a single accident.
- The third number represents the property damage liability maximum for a single accident. Does your car insurance cover pets in car accidents? If it does, your pet may be considered property and placed in this number.
So, in the case of Alaska, the minimum liability coverage a driver must carry is $50,000 for bodily injury for one person, with a maximum of $100,000 for all injured persons, and $25,000 for property damage.
When State Minimums are not Enough
While state minimum liability limits do offer some protection if you are at fault for a car accident, that protection does not add up when you think of it in terms of real dollars.
For example, in 2006, the average charges resulting from an average hospital stay of 4.6 days was $23,958, according to the U.S. Department of Health and Human Services.
While Alaska’s minimum bodily injury liability limit for one person would cover that amount, provided the injured person did not require additional care following discharge from the hospital, imagine if you lived in Arizona where the minimum liability limits for drivers are 15/30/10. If you carried only the minimum liability insurance, your policy would cover only $15,000 of the total health care costs for the injured person – you would be on the hook for the remainder.
And this is where your assets can come into play. If you do not have enough cash on hand to cover the medical expenses or property damage resulting from an accident that was your fault, then the injured parties can sue you and collect via your assets, which can include your home, your car, your savings and investments and even your future earnings. If you want to avoid having to liquidate your assets in order to cover an injured person’s medical expenses, you might want to think twice about carrying your state’s minimum limits.
How Much Insurance Should You Have
Many experts recommend that your auto insurance liability coverage at least equals your net worth, which is the value of your possessions and investments minus any debt you might carry.
When you purchase auto insurance, you should consider the following:
- Are you married?
- Do you have any dependent children?
- Do you own your home, and if so, what is the value of your home?
- What is your annual income?
- What is the value of your investments and savings, including your 401k?
- What do you estimate your future net worth to be when you retire?
Your answers to these questions will illustrate the value of your assets, which will help you to determine how much coverage you need. The larger your assets, the more protection you ultimately should have.