Every state or locality has their own requirements for the minimum amount of car insurance a person needs to carry in order for them to cover themselves and others in the event of an accident. For many people, carrying the minimum is standard because it is the most affordable way to legally drive.
The problem with carrying the auto insurance minimum is that they are usually much too low if you are in a sizeable accident.
For arguments sake, let's say you carry the state minimums in California. That means you have the following coverage:
- $15,000 for personal injury or death per person
- $30,000 for injury or death to more than one person
- $5,000 for property damage
Next, you get in an accident with a newer Honda Accord on the freeway and total the car. In addition, there are three people in the car and they all have to go to the hospital in serious condition. Your insurance coverage will only pay up the maximum listed above.
Three people in serious condition could cost over $100,000 each. Your policy only pays a maximum of $30,000. And the Honda you totaled is somewhere around $20,000, of which your insurance company will only cover $5,000. You are on the hook for the rest.
Proper Insurance Coverage
Now let's say you have an auto policy and have much higher coverage that looks like this:
- $250,000 personal injury or death for one person
- $500,000 injury or death for multiple people
- $100,000 property damage
This same accident could be completely covered by your insurance coverage, with you only paying a deductible of $500-$1000.
The reason why many people drive around with state and locality minimums is because they think it costs too much to carry more coverage. The reality is most people are shocked to find out how little the increase in premium is. In many cases, for a good driver, you can add 10x the liability coverage for just a few dollars more a month. This extra protection will protect not only the driver, but also the passengers in the car.
The thing to remember is that any damage caused that goes beyond the insurance amount comes back to the individual at fault. Even a minor accident with an expensive car can bankrupt a family.
How Much Insurance Should You Get?
Many insurance experts agree that you should carry a minimum of $50,000/$100,000 personal injury and $50,000 property damage. This is a good start, but still on the low side. Most accident types would be covered with this coverage, but a major accident still puts the individual or family at a big risk.
$250,000/$500,000 is the maximum most insurance companies will provide for personal injury before having to add an umbrella policy. Since so few accidents actually cause this much damage, the cost to add this amount pretty small. If you do not want to spring for the top coverage, at least go with $100,000/$300,000 personal injury and $100,000 property damage.