Auto Liability Limits

Auto insurance can be a little complicated. Getting the right coverage means thinking about what you drive, how you drive, how much you drive, how much you want to pay, what you want covered, and even more factors. But it’s easy to just think about cost. Buying car insurance based solely on price is intuitive and not uncommon, but the resulting policy almost always doesn’t provide adequate coverage, and it may cost you more money in the long run.

To understand how important it is to have a good policy, let’s start by looking at the minimum coverage that you need to have. Firstly, you need car insurance in general; driving without car insurance in Minnesota is illegal and can get you cited for a misdemeanor. But let’s assume you’ve got the bare minimum. All owners of cars driven and primarily used in Minnesota need to have no-fault,liability, and uninsured/underinsured motorist insurance.

No-fault insurance, also called personal injury protection (PIP), will pay for your medical bills and loss of income after a car accident, regardless of who caused the accident. This extends to your household family members, and it will also cover you if you’re a passenger in someone else’s car. The minimum state required limit for your PIP is $20,000, which is paid by your insurer and covers your medical bills regardless of fault.

Liability insurance helps pay for injuries and property damage that result from a car accident for which you are found at fault. The minimum requirements for liability coverage are 30/60/10, meaning $30,000 for injuries per person, $60,000 for total injuries per accident, and $10,000 for property damage. After a car accident you were deemed at fault for, the other driver’s PIP will take effect first, and your liability coverage kicks in if the cost exceeds the other driver’s PIP.

Lastly, uninsured/underinsured motorist coverage helps cover costs of an accident with a driver who’s uninsured or has inadequate insurance. If you get into an accident with an uninsured driver, your uninsured motorist coverage will help pay for the costs once you’ve exhausted the limits of your PIP. Your underinsured motorist coverage does the same for an accident with a driver who’s at fault and underinsured; the coverage takes effect once both your PIP and the other driver’s liability insurance limits have been exceeded.

With three different types of insurance and thousands of dollars worth of coverage, this required coverage might seem satisfactory or even unnecessary. But understanding adequate coverage means thinking about the situations on the road that cause it to take effect. This is when we start to see how low liability limits often create insufficient coverage. Let’s say you just got into an accident for which you are at fault, and you and the other driver both have the minimum amount of required coverage. Both your car and the one you hit have a few people in them, and the cars are seriously damaged. If everyone involved has PIP coverage, $20,000 will go towards their injuries. But if anyone is seriously injured, medical bills could cost tens of thousands more than that. Your $60,000 of liability insurance per accident wouldn’t be nearly enough to cover the medical bills for seriously injured passengers, even after everyone’s PIP has kicked in. This scenario assumes that the other driver is nice enough to not sue you, as a lawsuit could cost you hundreds of thousands more (which adequate liability limits would also cover). Also, you’ll have to pay for the damage to your car entirely out of pocket in the event your property damage limit was reached in order to pay for the other vehicles. This kind of catastrophe is certainly unlikely, but disasters like this happen every day. It is for this reason that nearly every state in the U.S. requires auto insurance, and it highlights the importance of getting adequate coverage to give you a financial safety net when things go wrong on the road.

Adding extra coverage to the minimum requirements might seem expensive, but the price of better coverage may surprise you, and there are some ways to lower your premium. The most important thing to remember is that increasing your coverage often affects your premium only slightly. Especially if you’ve got minimum coverage, extending the depth and breadth of your policy is often a no-brainer because it provides important coverage for only a marginally higher premium. Doubling your liability limits, for example, will not double your premium; you’ll get twice the coverage for probably less than ten dollars more per month. This may sound illogical, but a small increase in premiums is a lot of money for a big insurance company.

There are also several ways to lower your premium via discounts. Basic discounts such as a good driving record are usually applied automatically, but some discounts are available only if you look for them and take action. If you take a defensive driving course, for example, you may be eligible for a discount. If your driving habits change, and you’re now driving rarely or only for pleasure, let your insurance company know; they will likely lower your premium. For the insurance company, auto insurance is all about assessing your risk as a driver and combining it with your desired coverage to come up with a price. For you, auto insurance is about being secure and protected from disaster while paying a reasonable price. Nobody wants to get into an accident, and everyone wants to feel safe. This is why the insurance system works, and the only way to take advantage of it is to talk with your agent to find the coverage that’s right for you.

M.E.

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