State-Minimum Car Insurance Is Not Enough

Every time we get into our cars and drive somewhere, we’re exposing ourselves to the risk of getting into in a car accident. This is true whether we think we’re exemplary drivers or our driving record has room for improvement. Getting behind the wheel involves some degree of risk — of either causing an accident or being hit by another driver.

And this is why car insurance exists. We buy insurance to protect ourselves and others in the event of an accident — potentially an unimaginably severe accident, whether it’s our fault or not.

So, if we think about car insurance in its proper context — as protection against risk — how do we know that we have enough to cover ourselves and other motorists when it’s needed?

At Negretti & Associates, our legal staff works with the insurance industry every day. We’ve seen all types of insurance coverage.

Here, we’d like to offer our perspective on one approach to car insurance shared by many drivers: buying just the absolute minimum level of car insurance that states require drivers to carry. We’ll outline why this approach has many drawbacks.

We hope that anyone who reads this will carefully reflect on whether they’re properly protected in the event of an accident.

Topics that we cover in this article include:

• The types of state-minimum car insurance
• Elements of injury and property liability insurance
• What liability coverage actually covers
• How state-minimum car insurance results in minimum protection
• The risks of not buying uninsured and underinsured motorist coverage
• What to consider when shopping for car insurance
• Uninsured and underinsured motorist coverage with additional umbrella coverage

Types of State-Minimum Car Insurance

Nearly every state in the U.S. has laws that require motorists to carry a minimum level of car insurance. However, state laws only require two types of car insurance coverage: bodily injury protection and property damage.

Bodily Injury Protection: More commonly called liability coverage, bodily injury protection covers injuries to the other driver and his or her passengers. However, these amounts do not cover your own injuries.

Property Damage: Property coverage covers the damages that you cause to another driver’s vehicle. You can purchase collision coverage to protect your own vehicle in the event of an accident, regardless of fault.

Virtually every state mandates coverage amounts that drivers must carry for bodily injuries caused to other drivers and their passengers, as well as damages to other drivers’ vehicles and property.

Elements of State-Minimum Liability Insurance

Let’s take a more careful look at the types of liability protection that nearly every state requires: bodily injury and property damage.

Think of state-minimum car insurance as the maximum amount of liability coverage that drivers are required by law to purchase.

At Negretti & Associates, we are licensed to practice law California, Arizona, and Colorado. We’ll therefore use those three states as examples.

State-minimum car insurance in California is $15,000 / $30,000 / $5,000.

• The first figure ($15,000) defines minimum per-person bodily injury liability coverage. In effect, California drivers must have policies that pay up to $15,000 for one person’s injuries in an accident. If you have California state-minimum coverage and cause an accident, the most that the other driver or any individual passenger could receive as compensation for medical bills would be $15,000.
• The second figure ($30,000) specifies per-accident bodily injury liability coverage per accident. California drivers must purchase at least $30,000 in per-accident bodily injury liability coverage. If you have California state-minimum car insurance and were to cause an accident, $30,000 is the maximum amount that the other driver and his passengers could share as compensation for their injuries.
• The third figure ($5,000) covers property damage liability per accident. In California, drivers must purchase at least $5,000 in property damage liability coverage. This would be used to repair damages incurred to the other driver’s car, or someone’s nearby property.

In Arizona, liability coverage amounts were raised — for the first time in decades — on July 1, 2020. Currently, Arizona drivers must carry at least:

• $25,000 in per-person bodily injury coverage per accident.
• $50,000 in per-accident bodily injury coverage.
• $15,000 in property damage liability coverage.

Colorado mirrors what Arizona has in coverage: $25,000 bodily injury coverage per person, per accident; $50,0000 bodily injury coverage per accident; and $15,000 for property damage liability coverage.

What Does Liability Coverage Actually Cover?

Let’s look further at property liability coverage, which has numerous applications.

For example, the at-fault driver’s liability coverage can be used as a source of compensation for damages for any of the following:

• Repairs made to the other driver’s vehicle.
• Loss of use: the other driver’s car rental while his or her vehicle is being fixed.
• A potential diminished value claim: the difference between what the other driver’s vehicle was worth before the accident and what the vehicle is worth after the accident.
• Other losses that may occur related to the property claim.

Also, when a vehicle is declared a total loss — in other words, not repairable — the other driver must be compensated for fair market value of the vehicle prior to the accident.

How State Minimums Leave Drivers Barely Protected

When you list the possible uses of liability coverage, you quickly find that California’s minimum requirement of $5,000 for property damage coverage is extremely low.

It’s hard to find a fully functioning replacement vehicle for less than $5,000. Considering the ways in which vehicles are built today, as well as the labor needed to restore vehicles to pre-accident condition, just a small fender-bender can cost far more than $5,000 to repair.

Even in neighboring Arizona, where the cost of living is lower, the required $15,000 state-minimum property damage liability coverage does not stretch far. The average selling price of a used car is $21,000. Many cars on the road have values surpassing $15,000. State-minimum insurance often does not account for loss of use and diminished value.

It doesn’t take much math to conclude that purchasing state-minimum car insurance leaves drivers barely protected. Drivers who buy state-minimum insurance are merely complying with law. They are not even protecting themselves. This is an incredibly dangerous position to put oneself in.

If you have state-minimum car insurance and are deemed at fault in an accident, you may be liable for all expenses not covered by your policy. You may be expected to pay out of your own pocket to cover the difference between your insurance and the other driver’s actual expenses.

An attorney or a person injured in the accident could look to you personally to contribute to resolve a claim. The other driver can sue you, seize your assets, and have your wages garnished.

The Risks of Not Having Underinsured and Uninsured Coverage

Despite all of the insurance requirements written into states’ laws, the national average for uninsured motorists remains somewhere around 13%, according to a 2017 report from the Insurance Research Council (IRC). This means that one in eight drivers has no car insurance at all.

Remarkably, many people simply risk not paying for insurance and hope that they don’t cause an accident. Either they don’t want insurance or can’t afford it. Some states have much higher rates of uninsured motorists. In Florida, 26.7% of drivers lacked insurance in 2015.

California, Arizona, and Colorado have uninsured motorist rates that mirror the national average. However, these three states do not have laws on the books that require drivers to purchase uninsured motorist coverage (UM) or underinsured motorist coverage (UIM), which cover damages to your own car or injuries you suffer because you’re hit by another driver.

Underinsured/uninsured coverage: In addition to liability coverage, approximately 20 states go a step further with laws that define minimum insurance amounts that drivers must purchase to protect themselves against uninsured or underinsured drivers. This covers expenses related to vehicle damage and injuries when at-fault drivers have no insurance or do not have enough insurance.

Medical Payment coverage: This insurance covers your own and your passengers’ injuries, regardless of who is at fault in an accident. MedPay can cover medical bill, transportation to appointments, and physical therapy and rehabilitation.

Some states mandate what is called Personal Injury Protection (PIP) instead; this covers the driver’s own injuries, regardless of accident fault, and can include a loss of wages.

With MedPay or PIP, you have to be mindful of how much coverage you’re buying. Some states limit how much coverage can be used in an accident. Some insurance companies will require that they are paid back in full if you collect from another coverage under the at-fault driver’s policy.

If you were hit by an uninsured motorist and you don’t have UM coverage, then you are out of luck in terms of getting help from insurance to pay for your own damages and injuries. You might still be able to file a personal injury suit against the uninsured motorist, but you would not be able to collect from insurance.

By comparison, UIM exists to protect you when you are not at fault in an accident, and your damages and injuries exceed the other driver’s liability insurance amounts.

Imagine that you are in an accident in California, the at-fault driver had merely the state-minimum bodily injury liability coverage of $15,000, yet your injuries totaled $100,000 in medical expenses. Without UIM coverage, you would have to find a way to pay the difference of $85,000. You could attempt to go after the other party personally with the help of a lawyer, and you may be successful in obtaining a personal contribution from the at-fault driver. However, it’s unlikely that the other driver would have enough assets to cover that difference.

A few years ago, Negretti & Associates represented a young woman who was seriously injured when hit by an intoxicated driver. The at-fault party only carried the state-minimum insurance of $15,000. However, our client’s injuries — including surgeries and rehabilitation — were in the hundreds of thousands of dollars.

Our client was fortunate to have UIM, but only purchased $15,000 in coverage. The maximum amount of insurance money that we were able to collect for our client was $30,000. She deserved so much more. She told us that she wished that someone would have talked to her about how much UIM coverage to have before her accident.

What to Consider When Shopping for Car Insurance

When considering how much car insurance to purchase, start your analysis by asking yourself how much insurance you would want to carry so that you wouldn’t have to write a check from your personal bank account to pay for damages.

Do you own a home? Do you have a business? Do you have prized possessions? All might be in jeopardy if you were to cause an accident and were underinsured.

It might be uncomfortable to do so, but you have to think about worst-case scenarios — unthinkable situations, such as causing an accident that resulted in killing someone. Regardless of the policy you have, there’s really no way in which we can purchase enough insurance that would be sufficient for such an outcome. It’s difficult to put a dollar amount on a person’s life.

This considered, rather than choose state-minimum coverage, price-out a much larger plan — perhaps 10 times the state minimum — and then compare the two policies. Quite often, the difference in price may not be that much.

To illustrate, if you’re in Arizona, where the minimum liability coverage is $25,000, try to find out how much $250,000 in per-person bodily injury coverage would cost. On a per-month basis, the difference may not be significant. But coverage you get in return would be drastically different.

With quotes for the two policies in hand, you can go back to the original question: How much coverage do I want to protect myself and my family, along with my assets and belongings, to ensure that I’m not in jeopardy of losing what I have?

Even if you don’t have many assets to protect, you would still want to put yourself in a position where you are looking out for others.

As you shop around, remember that you can always reach out to an insurance broker, who can be great resource for recommendations on available policies. A broker can help you compare insurance from several companies all at once, so that you don’t have to solicit quotes from the insurers yourself.

You can also change coverage at any time. You don’t have to wait until your policy is up for renewal. You could contact your present insurance company today, even, and ask about different coverage. You can make changes immediately, if you are so inclined.

Uninsured Motorist Coverage and Umbrella Coverage

Do not overlook the importance of uninsured motorist coverage (UM). It can be a good idea to buy the same amount in UM as what you have in liability insurance.

For example, if you are going to purchase $100,000 per person, per accident in bodily injury coverage, try to purchase that same amount in UM for yourself. In effect, you’d be protecting another driver for up to $100,000 if you hit them and covering yourself for that same amount.

Umbrella insurance is another coverage type to consider as you shop for quotes. An umbrella policy is an extra layer of liability coverage that kicks in when your limits are met on the liability policy. Injuries can get into the seven figures. It possible to have anything from $1 million to $5 million in umbrella coverage.

It’s possible to have UIM and UM with added umbrella coverage. For example, you can have $250,000 in UM and UIM coverage, and then $1 million on top of that in umbrella coverage. In a scenario where the other party that caused the accident didn’t have enough insurance, an umbrella policy can ensure that you’re protected and that’s there is enough coverage for your own injuries and damages.

Adequate Insurance Is Necessary for All

The next time you shop for car insurance, explore your options. Think about what kind of coverages you would want in the event that you had to tap into your liability coverage. Try to find ways of covering yourself well above state-minimum limits, which leave drivers barely protected.

Don’t wait for a bad outcome to happen and wish later that you had an adequate amount of coverage.

Regardless of your financial position, having car insurance is the law in virtually every state. Why not take the extra step and have a good amount of insurance, to protect yourself and others if you were to cause an accident?

This is truly a matter of personal responsibility and civic duty. Please consider purchasing more insurance than your state’s minimum — for your own benefit and other drivers’.

And let’s work toward reducing the number of uninsured drivers on the road from 1 out of 8 to 0 out of 100. Let’s make sure that everyone has insurance. Driving without insurance, or having too little insurance, is quite simply an extremely risky thing to do.