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Having Enough Coverage: A Look at State Minimum Auto Insurance

Here's what you need to know...
  • You should expect to buy more than the state-mandated minimum amount of auto insurance coverage in order to be appropriately protected
  • There are several circumstances that may not be covered by the minimum amount of auto insurance as mandated by your state
  • You are personally liable for additional damages beyond what your insurer will pay, and you may even be vulnerable to a lawsuit
  • Having enough coverage will reduce the danger of being hit with high out-of-pocket expenses

If you are a licensed driver, it is mandatory that you must have auto insurance in order to drive legally. However, there are many different types and levels of auto insurance that you could have. Generally, a driver must carry a set level of state minimum auto insurance coverage.

The minimum amount of car insurance that is required can vary widely from state-to-state. Some drivers may believe that the minimum required amount of auto insurance, as mandated by their state is the only coverage they need. However, this is not often the case.

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What Minimum Amount of Coverage Means

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The minimum amount of coverage mandated by the state means that you must purchase at least that amount of coverage in order to be able to drive. However, the minimum amount of coverage does not mean that it is all that you need in order to be properly covered.

In almost all cases, you should expect to buy more than the state-mandated minimum amount of auto insurance coverage in order to be appropriately protected.

Minimum coverage may also have a very low dollar amount. Some states require only $10,000 or $25,000 worth of coverage. If you are involved in an accident and the damage is greater than this amount, you will be personally responsible for the additional amount, which could be a huge expense.

Minimum coverage may also neglect certain aspects of the policy that are important. Here are a few examples of what may or may not be covered:

  • Liability Insurance — Your insurer will cover the damage incurred on another vehicle if you have an accident. However, damage to your car will not be covered. You would have to pay for any repairs out-of-pocket.
  • Personal Injury Protection — May not be included. This coverage pays for hospital and medical bills if you or a passenger is injured in an accident.
  • Comprehensive Coverage —  May not be included. Comprehensive covers for vehicle theft, damage from weather, or vandalism. Many vehicle owners experience these common events at least once in their lifetime.

How to Find Your State’s Minimum Coverage Amount

The minimum amount of auto insurance coverage required by your state is subject to change. It also varies quite significantly from state to state. Because of this variation, it is important for drivers to stay informed about what the current requirements are.

You can find out what the minimum amount of coverage is in your state by contacting your local DMV or RMV. You can also talk to a knowledgeable coverage expert, such as a representative from your insurer of an independent auto insurance representative.

Remember that the minimum required insurance coverage may change as new laws or regulations are passed. It is a good idea to check the latest information from your state each year, ideally when you renew your auto insurance policy.

You May Need More Than Minimum Coverage

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There are several circumstances, as described above, where the minimum amount of car insurance coverage may not be enough. Of course, this is dependent on your circumstances and the regulations of the state where you live. If your state has very low requirements for insurance, it may be even more important that you carry additional coverage.

Injury of yourself or a passenger, theft, vandalism, extensive property damage, and damage to your own vehicle are just a few of the circumstances that may not be covered by the minimum amount of auto insurance as mandated by your state.

Any of these events could lead to large out of pocket expenses or legal liabilities.

Some drivers feel that they drive so infrequently that they only need the minimum amount of coverage. If you rarely ever drive and you are very comfortable with taking the risk, you may choose to carry only the minimum amount of auto insurance coverage.

If you make the decision to carry just minimum coverage, you should ensure that you have enough cash saved to pay for additional liability should you need to. If you are struggling with your budget, it may be a great hardship for you to be without your car. In this case, you probably are better off carrying enough coverage to protect you in the event of an accident.

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What Happens When Minimum Isn’t Enough

If you have an accident when you are carrying the minimum amount of coverage, you will fill out an accident report and file a claim exactly as you would with any other type of coverage. The insurer will then review the claim and determine what is and isn’t covered based on the circumstances and your policy.

The insurer will then pay whatever is approved, which may cover only a portion of the damages.

Then, you are personally liable for additional damages beyond what your insurer will pay, and you may even be vulnerable to a lawsuit!

You will also have to deal with your own expenses when it comes to your vehicle or your medical bills. If your minimum auto insurance coverage doesn’t include these expenses, you will have to cover them yourself. You will not be able to change your policy after an accident to retroactively cover what happened.

Find Out How Much Coverage You Need

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It can be difficult to determine how much auto insurance coverage you really need to be protected without overpaying. This fact is especially true if you are purchasing car insurance for the first time. You may want to consider reading the Consumer’s Guide to Auto Insurance published by the NAIC.

If you are confused about how much car insurance you need, it may be time to talk to an expert. Consider contacting an insurance expert, such as an independent agent or a financial planner, to discuss your needs.

You can also do your own research to determine what type and level of car insurance coverage is right for you. You can find several online guides to buying the right amount of car insurance coverage, such as this one from the Wall Street Journal or this one from the Insurance Information Institute.

When in doubt, it is wiser to err on the side of caution. Remember that a small increase in your premium equals a much larger amount of coverage. If you are living paycheck-to-paycheck with little savings in reserve, it is especially important to have a conservative amount of coverage.

After you have established your coverage and lived with it for a while, you can re-evaluate it on an annual basis. If you find that you have been too conservative in your policy choices, you can always revise your coverage each year when you renew your policy.

Having enough coverage will reduce the danger of being hit with high out-of-pocket expenses.

Getting the Best Deal

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One of the main reasons that some people want to buy the minimum possible amount of automobile insurance coverage is because of the high cost of insurance. However, as described above, it can be much more expensive in the long run to be missing key coverage!

Just because you are buying more than the minimum required amount of automobile coverage, it doesn’t mean that you have to overpay. It is possible to find the right policy at the right price. You will just want to do a little research.

You will want to be sure that you evaluate potential insurers on more than just price. For example, you will want to pay attention to quality and customer service. It may be a good idea to start by reviewing the list of car insurers with the highest customer satisfaction ratings, published by Forbes.

Make sure you take advantage of any potential discounts, such as those for safe drivers or infrequent drivers. Ask if you are eligible for additional savings by combining your auto insurance policy with your home or life insurance, or by taking a defensive driving course.

Once you have chosen an insurer and a policy, you will want to make a note to review your coverage every year. Determine if your plan is still working for you and check to see if there are additional discounts or special features in which you may be eligible. You may also want to review competitive quotes to see if you can get a better deal from another insurer.

You may have to buy more than the minimum amount of auto insurance to get full coverage, but that doesn’t mean you won’t still get a good deal. With some patience and research, you can find just the right auto insurance policy for your needs.

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