Why You Need More than the State Mandated Minimum Auto Insurance

The economic downturn experienced in the U.S. over the last few years has spurred many to reexamine their finances. Areas of expense that were given little, if any, thought before are now being scrutinized in an effort to find savings. Auto insurance is one such example. Many policyholders are reexamining their existing coverage for adjustments to lower their premiums.

Before making any change to your auto insurance policy, you should always find out what the insurance requirements are for your state. This info can be obtained through your State Dept. of Motor Vehicles (DMV). For example, the California DMV requires every motor vehicle to carry a minimum amount of liability coverage, which includes $15,000/ per person/per accident on a claim of bodily injury or death, $30,000/ per accident for all persons, and $5,000/per accident for property damage. In other words, if you have the state minimum requirement liability coverage for California and have an accident where you’re at fault, then the policy will pay the above amounts for property damage, medical bills, and vehicle replacement or repair for the other vehicle involved, but it will not cover you, your passengers, or vehicle.

Considering that the minimum coverage limits are the same as they were in 1967, when the cost of a new home averaged around $26,800, and that many vehicles on the road today cost at least that much or more, minimum coverage policies offer drivers inadequate protection. So, it’s important to consider how much risk you’re willing to absorb before only carrying the minimum required coverage.

Consider the following before minimizing your insurance coverage:

Insufficient Liability Limits

Some states aren’t no-fault. California, for example, is a tort state. This means you’re financially responsible to any person (or their family) that’s been hurt or killed or suffered property or vehicle damage
during an accident you’ve caused, regardless of intention.

Those that have only minimum liability coverage can find themselves paying any remaining portion of a claim once their coverage limits are exhausted. This can entail thousands upon thousands of dollars in funeral, medical, and property replacement or repair costs and legal fees to defend any resulting lawsuit.

Medical Expenses

Also consider your own risk and the risk to your passengers from a lack of medical coverage. Optional medical coverage for a non-commercial private passenger auto policy is available through most insurers and can provide some degree of coverage for medical expenses incurred by you and/or your passengers if you cause or are the victim of an accident.

Comprehensive Coverage

Comprehensive coverage generally pays for happenings like vandalism, theft, glass damages, damages caused by hitting an animal, and so forth that would otherwise be your financial responsibility. One simple way to determine if comprehensive coverage makes good financial sense is to determine the Blue Book value of your vehicle to determine if it’s worth more than the premiums would be to carry this coverage for the next couple of years. If it isn’t worth what you’d be paying in additional premiums, then it might make financial sense to drop this coverage.

Uninsured/Underinsured Motorist Coverage

All states have some requirements on auto insurance and the minimum requirements, but many drivers ignore these requirements and drive around without any insurance or insufficient insurance to pay for an accident they might cause. If you’re hit by such a driver, you may find yourself saddled with a lot of out-of-pocket expenses if you don’t have uninsured/underinsured motorist coverage.

In closing, reducing vehicle coverages when money is tight might save you money now, but the long-term financial risks are usually not something most people are willing to shoulder. Remember to make any insurance changes with careful consideration to the short-term financial savings and the long-term potential consequences.

Comments are closed.