Why Your Car Insurance Coverage Limits Are Too Low
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When you signed up for your car insurance policy, you probably asked questions about what expenses the policy would cover. You also likely paid close attention to your premiums. You might have considered how easily you could afford the deductible if you needed to file a claim. But how closely did you look at your car insurance coverage limits?
Car insurance limits play a crucial role in which expenses a policy will cover after an accident and how much they’ll pay. Overlooking these limits can be an expensive mistake. You don’t want to discover that your limits are too low once you’ve been in an accident. After all, by then, it’s too late.
Why Your Car Insurance Limits Are Too Low
Car insurance provides you with peace of mind, knowing that you have protection in case you’re ever in an accident. But did you know if you don’t have enough insurance, you could still be responsible for expenses resulting from an accident? It’s always a good idea to examine your car insurance policy. Especially since many drivers have car insurance coverage limits that are too low to provide the protection that’s needed.
How Much Car Insurance Do I need?
No precise formula will allow you to calculate exactly how much car insurance you need. Determining how much insurance is right for you is a personal choice. Still, it’s important to weigh several factors.
First, consider how expensive a simple accident can become. If you are at fault for an accident, you will usually be responsible for all the expenses. That includes not only yours but also those the other driver and any passengers sustain.
Those expenses include medical bills, vehicle repairs, and legal fees. Depending on an accident’s severity, resulting expenses could be tens or even hundreds of thousands of dollars.
That’s why car insurance is so helpful. Your insurance helps to pay for these expenses, minimizing or eliminating what you are responsible for paying out of pocket. But just how much they’ll pay will depend on the type of coverage you have and your policy limits.
You want to consider several factors when deciding how much insurance you need. These include your financial savings, your state’s minimum insurance requirements, and how much risk you’re comfortable assuming whenever you’re on the road.
How Car Insurance Coverage Limits Work
When you sign up for a car insurance policy, that policy will have specified limits. Those limits indicate the maximum amount of money your policy will pay on a single claim, like a car accident.
Liability policies display their limits in 3 numbers, like 25/50/25. This stands for $25,000/$50,000/$25,000.
In this case, the policy would cover up to
- $25,000 in bodily injury expenses per person
- $50,000 in bodily injury per accident
- $25,000 in property damage per accident.
Any remaining expenses would be your responsibility.
Uninsured and underinsured motorist limits are displayed in the same way. The numbers highlight specified limits for bodily injury expenses per person, bodily injury expenses per accident, and property damage expenses per accident.
It’s essential to choose a policy with limits that are high enough to truly protect you if you’re in an accident.
For example, let’s say you have a 25/50/25 policy like the one outlined above.
If you are in an accident that results in two people sustaining medical expenses totaling $40,000. You’re automatically responsible for $15,000 in damages because your policy only covers $25,000.
If you couldn’t pay for those expenses, the other people involved could take you to court and you would also have to pay legal fees. Lower policy limits make car insurance more affordable. Still, the increased risk you accept with these policies doesn’t always pay off.
How Much Car Insurance is Required by State?
States have minimum car insurance requirements that you need to meet to be able to register and drive your vehicle. These requirements vary by state, with some state minimums being significantly higher than others.
States specify the type of insurance you need and the minimum car insurance coverage limits that every kind of insurance must have. States require you to have insurance that meets these minimum limits to help ensure your and others’ expenses are paid for after an accident.
Those required minimum policy limits can vary significantly depending on where you live. California has some of the lowest minimums, requiring just $15,000 in bodily injury liability per person, $30,000 in bodily injury liability per accident, and $5,0000 in property damage liability per accident.
The minimum requirements in a state like Alaska are much higher. Alaska requires drivers to have a minimum of $50,000 in bodily injury liability per person, $100,000 in bodily injury liability per accident, and $25,000 in property damage liability per accident.
If you’re uncertain of your current limits, log into your online account through your car insurance company or them to speak with a representative.
Once looking at your limits, if you find you’d like to increase them, be sure to compare rates with various insurance companies to see which one can offer you the best rate.
Use our auto insurance comparison tool to help you compare quotes from up to 65 top insurance companies in a matter of minutes.
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What Type of Car Insurance is Required by State?
It’s also important to keep in mind that states may require you to have different types of coverage. Most states require a combination of:
- Bodily injury liability: Bodily injury liability coverage pays for expenses that other people experience due to an accident you have caused. These expenses could include hospital visits, lab work, physical therapy, etc.
- Property damage liability: Property damage liability coverage pays for property damage resulting from an accident you caused. These can include vehicle repair and replacement costs and damage to other physical property like a fence or house.
- Uninsured and underinsured motorist coverage: Uninsured motorist coverage pays for expenses caused by an uninsured driver or involved in a hit and run accident. Underinsured motorist coverage helps cover any remaining costs after another driver’s insurance has paid out the policy limits. These types of insurance help to ensure you aren’t left with unpaid expenses from an accident that wasn’t your fault.
- Personal injury protection or no-fault insurance: Personal injury protection and no-fault insurance will help to cover your medical bills regardless of who was at fault for the accident. This coverage may also pay for lost wages and other expenses, like childcare or household help if you cannot carry out those tasks.
States like Alabama and Alaska require liability insurance. In contrast, others, like Connecticut, require not only liability coverage but also uninsured and underinsured motorist coverage. Delaware is even stricter, requiring liability coverage, uninsured and underinsured motorist coverage, and personal injury protection.
Just because a state doesn’t require you to have all four insurance coverage doesn’t mean you don’t need them. These four types of coverage help to protect you in different scenarios, and they could mean the difference between being financially responsible for expenses and not having to worry about them.
Are State Minimum Insurance Requirements Enough?
While state minimum insurance requirements indicate the amount of insurance you need to be able to drive legally, you can take out a policy with much higher limits. An accident’s expenses may exceed those minimum limits, especially if a person is seriously injured or multiple vehicles are involved.
While minimum insurance requirements are enough to drive legally in your state, you must decide if you think they are enough coverage. If you’re in a state with higher minimums, you might decide that the coverage is enough for you to feel comfortable. In states with lower minimums, getting more coverage is a good idea.
How to Save on Car Insurance Without Sacrificing Coverage
It’s best to buy as much car insurance coverage as possible, and there are several ways to do that affordably.
Increase Your Deductible
You might consider raising your deductible if you want to increase your policy limits without paying higher premiums. With a higher deductible, you can keep your premium down. Still, you must prepare to pay the large deductible out of pocket after an accident before your insurance will pay for expenses.
Get a Discount
You can also explore any discounts you might be eligible for. Car insurance companies offer various discounts, so you might save money by signing up for paperless billing, paying your premium in an annual lump sum, or even taking a driver safety course.
If you have multiple vehicles, you could be eligible for a multi-vehicle discount when you insure them with the same company. And if you have other types of insurance like homeowner’s or renter’s insurance, you could qualify for multi-policy discounts. To receive this discount, both policies must be with the same company.
But most importantly, you will need to shop around and compare quotes. By changing to another car insurance company, you might be able to increase your policy limits without paying too much more.
Using Compare.com’s auto insurance comparison tool can help you quickly and easily gather these quotes and see what you would pay for more coverage at another company.
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Frequently Asked Questions About Car Insurance Limits
What are coverage limits in insurance?
Coverage limits designate the maximum amount of money a car insurance company will pay for a particular type of expense resulting from a single accident. Even if fees remain after those limits are paid, an insurer will not pay out additional money. If you were at fault for the accident, you could be financially responsible for those expenses.
Is car insurance required in all states?
All states require you to carry car insurance, but New Hampshire and Virginia give you the option to opt out. You will need to pay an annual fee to opt out and legally drive without insurance in those states. If you drive uninsured and are at fault for an accident, you could be responsible for all the resulting expenses, including medical bills and property damage.
What does 100/300/50 represent on an insurance policy?
The 100/300/50 represents the limits of a car insurance policy. A liability policy with a 100/300/50 limit would cover up to $100,000 in bodily injury expenses per person, $300,000 in bodily injury expenses per accident, and $50,000 in property damage.
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