The Importance of Insurance

Minimum Auto Coverage: When Is it a Good Idea?

15 July 2015

Katrina Terry

With the price of automobiles and medical care skyrocketing, it's normal to think that more auto insurance is almost always better than the alternative. However, as these prices continue to rise, insurance premiums tend to rise as well. If you're a driver that needs to file an SR-22, your costs for significant levels of auto coverage might be unsustainable.

That's why it's important to understand when lower insurance levels make good financial sense. You'll be able to choose the right coverage levels for your unique situation, and you'll also understand the risk factors at play when you carry this type of insurance on your car.

Understanding State Minimums

No matter what state you currently reside in, you're subject to minimum insurance laws. While these laws are different in certain aspects, the coverage levels required by law are typically close to those found in New York:

• $25,000 per injured person for bodily injury
• $50,000 per accident for bodily injury
• $10,000 for property damage

Those numbers alone probably don't mean that much to you. The important thing to remember is that these numbers are required because they cover the liability issues found in the majority of accidents. In fact, in 2012, the average auto liability claim was only $3073, while the average bodily injury claim was approximately $14,653. As you can see, the state minimum coverage levels would be more than sufficient in the event of an average claim.

However, there are certain situations where these average numbers can be quite low. For example, if more than two people are injured in an accident, the per accident cap is usually reached easily. Also, in areas where expensive automobiles are the norm, $10,000 for property damage won't even begin to cover the cost of a major accident. 

Knowing When the Minimums Are Sufficient

There are certain situations and scenarios that make the minimum insurance levels much more appropriate than in other circumstances. You'll have very little control over some of these factors, while others are easily changed in your favor. Looking at these factors is critical for making the right decision about your auto insurance levels.

Typical Number of Passengers—You can't control the number of people in the other cars involved in an accident, but you can control the passengers in your car. This is important, because most states fall under comparative fault rules. That means you could be partially liable for your passenger's injuries, even if the other driver was primarily at fault. 

If you're the person who's always driving their friends and family to their destinations, you might want to raise your level of bodily injury coverage. On the other hand, if you're a solo commuter most of the time, the minimum is much more feasible. 

Normal Travel Routes—You might think that the faster an automobile is traveling, the more likely it is to be involved in a critical accident. This, surprisingly, isn't true. While the actual damage done to property and people at higher speeds is increased, the most dangerous portion of the road for driving concerns is the intersection--found in low-speed environments exclusively.

If you find yourself on interstate highways and country roads a lot, you're less likely to be in an accident than if you're constantly driving in densely populated urban areas. You're also less likely to hit pedestrians--which can quickly burn through bodily injury insurance. 

Cash On Hand—The worst outcome from carrying minimum auto insurance is the time when claims exceed your insurance coverage. However, this isn't a problem if you have a substantial savings at your disposal. In that case, the monthly savings is absolutely worth the risk of a critical accident that exceeds your insurance levels.

If you're living paycheck to paycheck, though, a major accident could be financially devastating. People who take minimum coverage without a major savings should attempt to build their savings immediately. Fortunately, lower insurance premiums each month can help with that task.

Minimum auto coverage isn't the right choice for everyone, but it's a good idea for more people than you might think. By taking a hard look at your driving habits and your financial situation, you should be able to determine what level of coverage is right for you. For more insight, visit resources like http://www.greatnortherninsuranceagency.com.

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