Traffic on a four-lane highway.

The dilemma of minimum car insurance coverage

The problem arises when it comes to deciding how much insurance should be required for insurance drivers. Ideally, each driver should have sufficient coverage to pay all injuries to third parties and to repair or replace all vehicles or property damaged in the accident. (Photo: Jevanto Productions/Adobe Stock)

Nobody disputes America’s love affair with cars. American muscle cars are very popular among many, and while automatic transmissions have been around for a long time, there are still those who love to drive manual. There are 284 million vehicles on US roads, with 227 million licensed drivers. Unfortunately, the love of driving doesn’t make us good at it, as there are an average of 6 million accidents each year. The annual cost of these accidents from property damage, injuries, lost productivity, and other expenses is $800 billion.

Because of these costs, states require drivers to carry insurance that provides coverage for injury and property damage, to both the insured and any innocent parties who may be involved in an accident — otherwise known as financial liability minimums. This coverage allows people to be repaired after an accident, so that their injuries can be treated and their damaged vehicles or other property can be repaired or replaced.

Coverage is provided based on the maximum amount per casualty, maximum amount per accident for all affected parties and property damage. Limits of $20/50 for an individual, $50,000 for all injured parties, and $10,000 for property damage will be shown for 20/50/10.

For example, the insured had an accident that injured two people and caused damage to the vehicle they were riding. Person injuries cost $25,000, second person injuries $10,000, and vehicle damage $9,000. If our insured limits are 20/50/10, the first person will only receive $20,000 because their injuries exceed the individual limit; The second person will receive $10,000 because this is the cost of her injuries and is within the total amount of each accident; And there will be $9,000 for damage to the car.

The challenge of setting the minimum coverage

The dilemma arises when it comes to deciding how much insurance should be required for insurance drivers. Ideally, each driver should have sufficient coverage to pay all injuries to third parties and to repair or replace all vehicles or property damaged in the accident.

However, the ideal is not always practical or realistic. In 2021, the average cost of a used car is $26,700. While most of the vehicles were not assembled in an accident, many do exist, and there are many new vehicles on the road as well. There are also a lot of accidents involving more than one vehicle. Minimum property damage in nearly half of the states is $25,000; The rest of the states have lower limits – some as low as $5,000.

Premiums for those higher limits are more expensive. Likewise, those who have had accidents and violations on their driving record incur a higher insurance fee, and the combination of these two factors can be prohibitive for many. Some people pay higher monthly premiums for basic limits than others pay in an entire year for higher limits.

If a state requires insurance limits of 100/300/100, many may not be able to afford coverage and will drive without insurance, completely reversing the desired effect. The question is, what are the limits that are reasonable enough to protect the public at large while allowing as many people as possible to purchase insurance?

New Jersey faced this dilemma in June. Various reform bills have been introduced that require increased liability limits. One bill called for Personal Injury Protection (PIP) to be increased to $250,000, and another bill was to prohibit drivers from using private health coverage to pay for PIP in exchange for a premium discount. The bill approved by the Compilation Committee would increase liability requirements to $25,000 as of 2023, and to $35,000 in 2026.

Supporters of the bill state that coverage needs to be increased, and that the average settlement for a car accident is $18,000, which is above the current minimum limits. Others say low-income people are cash-strapped, especially now, that raising the bottom line will lead to more economic hardship on low-income families and more people will drive without the required coverage because they can no longer afford it. When a person has to weigh housing, food, medicine and other basic necessities, unfortunately auto insurance often falls by the wayside.

Find coverage

More uninsured drivers on the road will force insured drivers to turn to their coverage in the event of an accident. For this reason, many states require a certain amount of coverage for uninsured (UM) or uninsured (UIM) drivers as well. Some states require UM/UIM limits to match the liability limits in the policy, while other states allow the insured to carry different limits. Therefore, an insured carry limit of 100/300/100 can carry a limit of 25/50/25 to cover an uninsured driver. However, this puts the insured at risk of being uninsured. If he has a serious accident with an uninsured motorist, his minimums may not cover all of his medical expenses or the cost of replacing his vehicle. People sometimes assume they don’t have to worry about uninsured motorists because auto insurance is required by the state, but statistics show that as of 2021, there were 28 million uninsured drivers on the road.

Countries try to balance each driver’s need for insurance coverage with each driver’s ability to pay for that coverage. Determining adequate minimums to protect people in the event of an accident while keeping the cost of insurance affordable is a challenge faced by all insurance departments.

Kristen J. Barlow, CPCU, ([email protected]) is the executive editor of the FC&S Expert Coverage Interpretation, the authority on the interpretation and analysis of insurance coverage for the P&C industry.


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