Understanding Minimum Coverage Car Insurance

girl confused on her minimum coverage car insurance

Why even bother with car insurance? It’s just throwing away good money, right? Wrong!

Here are just a few reasons you and every other driver you know should have car insurance:

  1. Car insurance is legally required in 48 of the 50 states (and the two outliers, New Hampshire and Virginia, still have conditions for those without it).  In Arizona, drivers who are caught driving uninsured can have their car registration and/or driver’s license suspended.
  2. If you are uninsured and in an accident, all of your assets – everything you own – is at risk. Your house, your car, your savings – you could lose it all.
  3. If you are in an accident, your own insurance can help you cover costs, no matter who is at fault.

The average American is in three to four car accidents over the course of their lifetime and there are approximately 10 million car accidents nationwide every year. The odds of you avoiding fender benders your entire life are pretty slim.  With over 263 million registered vehicles in the country, chances are your car is going to come into contact with at least one of them someday.

How does auto insurance work?

Like most types of insurance, you buy a policy that pays you in the event of an incident. You choose the payout amount, and then you submit monthly payments for as long as you own the car. If you are accident-free, nothing happens. In the event of an accident, all the insurance companies involved will work together to determine who was at fault.  They will examine the police report, witness testimony, and any other evidence you gather from the scene, like photos. (And in Arizona, both parties might be determined to be partly at fault, with each assigned a percentage of the blame.) If the accident is determined to be your fault, or more your fault, your insurance will pay the other party for their physical injuries and car repair (or replacement) up to those limits outlined in your policy. Higher payout amounts will cost you more but also protect you more thoroughly. If the other party’s bills exceed the amount of your policy, you are still on the hook for the difference.

What kind of insurance do you need?

A car insurance policy, no matter which company issues it, will have at least two segments and as many as six:

  • Bodily injury liability
  • Property damage liability
  • Uninsured/underinsured motorist
  • Personal injury
  • Collision
  • Comprehensive

Arizona, like most states, requires all motorists to have the first two on the list – bodily injury liability and property damage liability. In AZ, your bodily injury liability is a minimum of $15,000 for one person and $30,000 for two people, and your property damage liability is a minimum of $10,000. As those are the legal coverage minimums, no insurer can sell you a policy offering anything less.

But what if the other guy has $100,000 in hospital bills and his $40,000 car is totaled?  If you have the minimum legally required insurance, it will pay the first $15K on the hospital bills and the first $10K on the car . . . and then you are personally responsible for all the rest. In this sample scenario, even after insurance coverage, you will still owe the other guy $115,000.   Ouch!

This is why most people will buy auto insurance that offers more coverage than the minimum state requirements. The question then becomes – how much more insurance should you get?

That depends on your personal financial situation, but a good rule of thumb is to match your bodily injury liability to the grand total of your assets, since that is what will be at risk if your insurance doesn’t cover the bill. Do you own your house? Do you own your cars? Do you have money in the bank in a savings account, or money invested somewhere? Tally all that up – your insurance should be at least that amount. You should also raise the amount of property liability insurance from the minimum of $10K; the average cost of a new car is over $35,000, so if the other guy needs his car replaced, you will be on the hook for well over that $10K. Insurance experts often recommend around $300,000 in bodily injury liability (per accident) and at least $35,000 in property liability.

You should also consider the remaining four segments available in an auto insurance policy. The next two you should add are the uninsured/underinsured and the personal injury segments.

The uninsured or underinsured piece protects you if you are hit by someone with little or no auto insurance of their own. If they have no insurance and few assets, it won’t matter how much they owe you for your own medical bills or car repair if they simply don’t have the money. You will want your own insurance to cover this scenario. Ideally, this number will match your bodily injury liability number, since again, you are aiming to keep your existing assets intact and untouched in the event of an accident. You don’t want to sell your house or drain your savings to pay your own bills.

The personal injury segment will add another layer of insurance that covers medical bills you acquire as a result of a car accident. Although you may have health insurance, that doesn’t necessarily cover all your medical bills. A personal injury policy can help fill in the gaps.

Finally, if you’re interested in having the most thorough coverage possible, you will want to add the remaining two segments – collision and comprehensive. Collision will cover the cost of repair or replacement of your car in the event of an accident. If you have a car with a loan, you will be required to have collision insurance. However, if you are driving a clunker with little or no resale value, you might choose to skip this; the cost of the collision insurance might outweigh the payout you’d receive to replace the car.

Comprehensive covers damages to your car if you don’t hit another car. If it sits outside in a hail storm, or you hit a deer, or it gets flooded by storm surge, comprehensive insurance will cover it. Comprehensive also can provide coverage if anything of value is stolen out of your car.  Like collision insurance, comprehensive is usually required by lenders, and it’s not necessarily something you want to pay for if you have a low value car.

Insurance may feel like a waste of money, but it is one of the best investments you can make in your long term financial health. Without it, one brief moment on the road could cause cataclysmic damage to your finances or even your physical health and recovery. But it doesn’t have to cost an arm and a leg. Gebhardt Insurance Group doesn’t just sell insurance. We comb through policies of over 40 insurance companies to find the exact right provider and insurance coverage in Arizona for your budget. Click on Contact Us above or call us at 520-836-3244.

Posted in