Accidents happen. Auto insurance helps protect you in the unfortunate event that you cause an accident. If you are found liable, your auto insurance covers injuries to the other driver involved, their passengers and your passengers. Without car insurance, you would have to pay these costs yourself. Most states, including Pennsylvania, require that you purchase a minimum amount of car insurance. This is to protect everyone on the road, including at-fault drivers from financial liability and those who are seriously injured, from uncovered care. However, it’s important to understand that purchasing the state minimum limits may not provide you with the coverage you need.
While it’s tempting to get the cheapest, most minimal coverage allowed by state law, having adequate liability coverage can be the difference between being well protected and a financial disaster. Rather than solely looking at price, it’s important for everyone to understand their coverage, so that you can make an informed decision about the amount of coverage you want to have and the amount of financial risk you’re willing to take.
What is the legal minimum coverage? It varies from state to state. Minimum limits refer to the absolute minimum bodily injury and property damage coverage required by state law for you to legally own and operate your motor vehicle. Before you begin shopping around for minimum car insurance coverage, it’s important to understand the different parts of an auto insurance policy. Every policy is different, so it’s essential to refer to your policy – or the one you’re considering purchasing – as exclusions may apply.
Here are the basic terms and phrases you need to understand to understand the minimum auto insurance coverage you need:
Bodily Injury Liability
If it’s determined that you are legally liable for an accident, you are responsible for the cost of injuries and death of the people involved in the crash, in addition to whatever injuries you may have. As long as you have a car insurance policy, the insurance company will cover the injuries and death of people involved in the accident, up to a certain limit. Bodily injury liability does not include you. It is for other people involved in the accident – whether they were in your vehicle or not. This type of coverage also helps with lawsuits that may occur as a result of the accident, as it will cover your legal defense costs if you are sued as a result of the accident.
Property Damage Liability
Accidents are messy. When an accident occurs, we are always most concerned about the people involved, but there’s a third area of coverage that we might overlook – property damage. If you’re in a car accident that causes damage to another car, a guardrail, a roadway, someone’s home or yard, etc., the person who is found legally liable for the accident has to pay for that damage. As long as you have a car insurance policy, property damage liability coverage pays for that loss, up to the limit you select. It also pays for any legal defense costs resulting from a lawsuit against you for the accident.
First Party Benefits
First Party Benefits (FPB) is the part of your car insurance that covers you – your medical, hospital, work loss, accidental death, and funeral expenses. It covers any immediate care you need, in addition to treatment you may need over time as a result of an injury tied to a car accident. If work loss benefits are selected on your policy, it would cover your lost income for time off of work if you are unable to work due to a car accident, but only up to the limit you select. Your FPB may provide coverage for accidental death, and funeral benefits if you had selected them on your policy. It also covers those expenses for any resident relative who is with you in the insured vehicle at the time of the accident. The limit of what it covers is established by the car insurance policy you purchase.
Uninsured/Underinsured Motorist Protection
Despite the fact that state law requires a minimum auto insurance coverage, there are still some people who don’t have insurance. Even if they do have insurance, having the minimum may not be enough to cover the extent of the injuries and damage that results from the accident. If you’re in a car accident and the other person is found legally liable, but they don’t have insurance or doesn’t have enough insurance to cover the costs of injuries from the accident, this coverage kicks in under your policy. Uninsured and underinsured motorist protection coverage covers injuries to you and resident relatives who were in the car with you at the time of the accident, up to a predetermined limit. Coverage amounts vary – you choose the limit when you purchase your policy.
Explanation of the Numbers
Now that you’re familiar with the primary liabilities and protections when it comes to auto insurance, you need to understand how to read the numbers. If you’ve done your research on car insurance, you’ve probably seen a series of numbers separated by forward slashes, for example, 25/50/10. These numbers represent the amount of coverage you have in a few of these key categories.
In our example of 25/50/10, here’s what each of the numbers means:
- 25 – The first number in the series is referring to the bodily injury coverage per person. Remember, that’s the amount of coverage you have for people involved in the accident if you are legally liable for the accident. In this example, you would have $25,000 of coverage per person in an accident that was your fault. If one person in the accident required more than $25,000 to treat injuries, it would have to come out of your pocket.
- 50 – The second number is still referring to the bodily injury coverage but provides more context. This number refers to the total bodily injury per accident. In other words, this is the maximum amount of money that the car insurance policy will cover for injuries to others as a result of an accident in which you’re found legally liable. In our example, you would have a maximum of $50,000 total ($25,000 per person) coverage for injuries to people in an accident that was your fault. If more than two people were injured and needed more than $25,000 for their treatment (a total of $50,000), then you would have to pay that amount out of pocket.
- 10 – The third number refers to the amount of property damage coverage you have. In this example, you would have a maximum coverage of $10,000 for property damage that happened as a result of an accident in which you’re found legally liable.
What You Need to Know About Minimum Car Insurance
Since you have some background knowledge on the different parts of a car insurance policy and know what the numbers mean, let’s talk about what’s required and how much auto insurance you need. We’ve included some information below regarding the minimum auto insurance coverage that’s necessary and what you should consider before you decide to go with the bare minimum.
- Each state is responsible for establishing a mandatory minimum car insurance. The state manages auto insurance, so the minimum auto insurance requirement varies. In Pennsylvania, for example, the minimum car insurance liability limits are 15/30/5, one of the lowest in the country. That means the insurer will cover, for any one accident, bodily injury up to $15,000 per person, $30,000 for all people hurt in any one accident and $5,000 for property damage. While this low minimum may seem great for your bank account, the reality is it’s dangerously low and puts you at significant financial risk. It was mandated in 1974 and hasn’t been adjusted once for inflation.
- Purchasing the minimum may not be enough. In light of costs for car repairs, hospitalization, follow-up medical care and lost earnings for the people who sustained injuries, minimum limits often can’t cover the entire cost of all damages caused by an accident. It’s important to remember that a serious injury could incur medical bills for weeks, months, even years. Any treatment that is needed as a result of an injury comes back to you if you are deemed legally liable for the accident. In addition to injury treatment, if someone is unable to work, you may be responsible for their lost wages. These can add up fast and cause a financial burden if you don’t have the auto insurance coverage to protect you. Ultimately, the decision to stick with the bare minimum depends on your appetite for putting your assets at risk.
- Consider buying more than the state law requires. Carrying minimum state protection may seem more economical in the short term. However, if you become responsible for damages higher than your policy limits, it would be substantially more expensive. To prevent this, you should think about buying liability insurance that has limits higher than the required minimum. When you’re considering the amount of auto insurance to buy, ask yourself a few questions:
- Do you own your car?
- Do you own a home?
- How much money and assets do you have?
Why consider home, money and assets in addition to your car? Because in addition to expensive medical bills, car accidents can lead to lawsuits. If you don’t have the coverage to protect yourself, your home, assets and cash could be at risk.
- There are recommended limits of coverage. If you do decide you need more auto insurance than is required by the state, how do you know how much is enough? Fortunately, there are recommendations available. According to the Insurance Information Institute, you should have $100,000 or more in bodily injury protection per person and $300,000 per accident – commonly known as 100/300 for the first two numbers in the series. However, depending on your circumstances, even this amount could be considered insufficient.
- There are ways to obtain higher limits of coverage if you want more than your auto policy can offer. Not all carriers can offer bodily injury and property damage limits above 250/500/250. If you are interested in carrying higher limits than this, a personal umbrella policy (PUP) can be purchased to supplement your auto insurance. The personal umbrella policy requires that you have a car insurance policy in place, and then if an accident occurs and the liability limits of your auto policy have been exhausted, the personal umbrella policy kicks in. You will have to meet minimum limit requirements set by the insurance company for your underlying auto policy to avoid having a huge gap in coverage. For example, if you have only state minimum limits ($15,000 Bodily Injury Per Person) on your car insurance policy, and the insurance company requires that you have $100,000 Bodily Injury Per Person, you could have a gap of $85,000 Per Person that would come out of your pocket before the umbrella coverage would apply. Personal umbrella policies are usually purchased to cover you in increments of $1 million. Costs for these insurance policies vary. If you own a home, a personal umbrella policy can also supplement homeowner’s insurance. As with any insurance, exclusions apply, and policies vary, so if you decide to get a quote, make sure you ask your insurance agent about the fine print.
- Is increasing my limits the right choice? There is no one-size-fits-all answer. Every person’s situation is different, and everyone has various assets to take into consideration. People also have mixed feelings about risk. Some are fine with putting everything at risk to get the cheapest coverage, while others can’t stand the thought of not being prepared. While we’ve provided some insight in this piece, it’s best to consult with an insurance agency, like Gunn-Mowery, to analyze your situation and explore your options so that you can balance your priorities when it comes to increasing coverage limits and budget. It’s also important to consider that increasing your coverage limits or adding a personal umbrella policy might not turn out to be as expensive as you expect. Whether you have minimum limits or not, if you want more peace of mind and better protection for you and your family, as an independent insurance agency, Gunn-Mowery is here to help with any questions you may have about your options.
Gunn-Mowery Can Help You Balance Coverage and Cost
It all comes down to this – if you’re looking for a good deal when it comes to auto insurance, the state minimum may not be your best option when you consider the financial impact it could have on you and your family. However, working with Gunn-Mowery as your insurance agency can help you get the affordable price you’re looking for along with an amount of coverage you’re comfortable with. As you’re searching for car insurance answers, it’s easy to focus on the negative, but we can show you the upside of car insurance.
As an agency, we have the expertise to recommend coverage options based on your individual needs. Then, we do the work for you. We have positive relationships with numerous insurance companies, so we can multiple quotes and find you the perfect balance of coverage and affordability. Our customers are the center of our business, and we continuously strive to meet your insurance needs. That’s why we’re responsive, and you won’t find yourself on hold and not knowing with whom you’re speaking. You’ll get a live person, not an automated system, every time you call. We’ll deal with the insurance companies on your behalf. Let the insurance jargon up to us. We’d love to have the opportunity to show you the affordable rates we can get for you. To get started, just fill out a form on our website to request a free, no-obligation quote.