Why You Need More Than the Statutory Minimum When You Buy Auto Insurance
Every region requires a statutory minimum of auto insurance to minimize everyone's losses, but in most cases, you likely need to purchase additional coverage.
Whenever you get behind the wheel, you run the risk of getting into an accident. To make sure that drivers can compensate each other for bodily injuries and property damage, all U.S. states, territories, and Canadian provinces have established financial responsibility laws that require drivers to purchase a minimum amount of auto insurance.
Components of Auto Insurance
In the United Sates, the statutory minimum has three components:
- Coverage for bodily injury for each party involved
- The total limit for bodily injury resulting from any one accident
- The limit for property damage.
The three limits are commonly written side by side with a slash to separate the numbers, with each number representing thousands of dollars. So, for example, 10/20/5 would represent $10,000, $20,000, and $5,000 of coverage of the respective type.
Statutory Minimum Auto Insurance Chart
|California||15/30/5||Low-income drivers can obtain insurance through the California Automobile Assigned Risk Plan, which has limits of 10/20/3.|
|District of Columbia||25/50/10|
|Maine||50/100/25||$1,000 in medical payment coverage is required as well.|
|New Hampshire||25/50/25||$1,000 in medical payment coverage is required as well.|
|New Jersey||15/30/5||Basic policy limits are 10/10/5, but do not offer uninsured or underinsured motorist coverage.|
|New Mexico||25/50/10|| |
|New York||25/50/10||Insureds must also have 50/100 for wrongful death.|
|North Carolina||30/60/25|| |
|North Dakota||25/50/25|| |
|Puerto Rico||4/4/4||Minimums are purchased via a government agency known as the Automobile Accident Compensation Administration. This premium is refunded if you procure auto insurance privately.|
|Rhode Island||25/50/25|| |
|South Carolina||25/50/25|| |
|South Dakota||25/50/25|| |
|West Virginia||20/40/10|| |
Auto insurance policies provide coverage in the United States of America, its territories and possessions, Puerto Rico, and Canada (but are you Driving to Mexico? Here's What You Need to Know about Auto Insurance).
There is also a provision for those who travel in states or provinces where the statutory minimum is higher than the minimum in the state where the vehicle is garaged. In this case, the limits increase to the statutory minimum of the region in which an accident occurs. For example, a car is garaged in Illinois (20/40/15), the driver is the at-fault party in Wisconsin (50/100/55), and there is $30,000 in property damage. The policy would cover the entire loss because Wisconsin's statutory minimum is higher.
Are Statutory Minimums Enough?
In most cases, the answer is no. To ensure repayment, auto loan lenders require borrowers to name them as a loss payee on auto insurance policies. Lenders may also insist on limits higher than the statutory minimum as a condition for the loan. In these cases, the consumer has to satisfy it by buying sufficient liability insurance coverage.
Even if the car is fully paid for, the answer is still likely no. Take, for example, a driver with California's statutory minimum of 15/30/5 and who collides into two parked cars. She does $6,000 in damage to one car, which does not have uninsured/underinsured motorist coverage and $7,000 in damage to the other, which does have uninsured/underinsured motorist coverage of 250/500/50. Because her limits are insufficient to cover the damage, the owner of the first car files a small claims action and the insurer for the second car sues the at-fault driver. She ends up responsible for the $8,000 difference between the policy limit and the amount of property damage she caused.
That brings us to a third reason why statutory minimums may be insufficient. Uninsured/underinsured motorist coverage covers damages beyond the other party's limits. In the example above, the insurer of the second vehicle adjusted the claim and provided for a rental vehicle while the car was being repaired. Thus, the insurer had the right to seek reimbursement for indemnification from the at-fault party.
Although you are required to carry a minimum amount of auto insurance to satisfy legal requirements of where you reside, the minimum is often insufficient to provide adequate coverage for losses. Moreover, you may be required to maintain higher limits to satisfy a lender's requirements. The additional cost of the limits is low for the amount of additional protection provided, and should you be an at-fault party for a large loss, you may consider the extra cost a bargain.