It’s the beginning of a new year, and for drivers in certain states, that means higher required liability limits.
Nearly every state requires a minimum level of car insurance that you must have to drive legally. State laws govern these mandated coverage amounts; sometimes, legislators increase the car insurance you need to meet the minimum.
If you are in a state where this happened and only have the prior, lower amount of insurance required, are you still covered? What happens to your rates and policy limits? Drivers must understand how their coverage is affected when liability laws change.
States tend to raise minimum requirements for liability coverage around the start of the year or in July, which is the beginning of the fiscal year.
Learn how liability car insurance works and what it covers, why states raise their minimums and how it will affect your policy and, more importantly, your premium.
What are compulsory insurance minimums?
In almost every state in the country, you must carry a certain amount of liability insurance to be legally out on the road. The required amount of liability insurance is set at the state level (by the state legislation) so it will vary depending on where you live.
Liability car insurance covers damage you are responsible for if you are legally liable for an auto accident. It will help pay the medical bills of an injured person or repair damage to another’s property, such as a car, fence or even landscaping.
Liability insurance comes in a couple of different flavors:
Bodily Injury Liability (BI): If you are at fault in an accident and the other driver, passengers or pedestrians are injured your bodily injury coverage may help pay for these costs – up to your chosen limit:
Medical Bills: Bodily injury insurance will help pay for a person’s medical bills up to the policy limits. This includes emergency services and hospital care and may cover follow-up visits and wheelchairs or crutches.
- Lost Income: If the person you injured cannot work due to physical therapy or a long recovery time, your bodily injury insurance may help pay compensation for their lost income.
- Legal Fees: You may end up being sued by the injured party or their insurance company. A bodily injury policy may help cover the cost of your legal fees if you end up in court.
- Property Damage (PD): Property damage coverage will help pay for damage that you do to other people’s property. This includes the other person’s car if you are in an at-fault accident as well as other property such as fences, mailboxes or even landscaping.
Liability insurance is most commonly shown in this format: 20/50/25. The first two numbers are the bodily injury limits, while the third number is related to property damage limits.
As an example, in 20/50/25, the 20 means that coverage goes up to $20,000 for each person injured in the accident, while the 50 indicates that $50,000 is the maximum coverage for everyone in the accident, and the 25 equals $25,000 for property damage.
It should be noted that liability coverage only pays for damage you cause to others. It will not pay your own medical bills or repair/replace your own car.
State minimum car insurance levels
Almost every state in the country requires drivers to carry minimum liability insurance. The required minimums can vary dramatically between states. In nearly all cases, the state-required minimums are too low to protect you in the event of a severe accident fully.
While carrying at least the minimum amount of liability insurance is better than nothing, it is rarely enough coverage in a serious accident. If you are at fault in a major accident, the victim can legally go after all of your assets once your insurance policy is exhausted. This means they can sue you for damages and end up with your home, savings, and other assets if you lose in court.
Industry experts have a different opinion than state lawmakers about the minimum levels a driver should carry.
“At a minimum, I recommend 100/300/100,” says Ben Guttman with North Central Insurance Agency in Hereford, Maryland. “However, for many homeowners or small business owners to qualify for a Personal Umbrella policy, you may need to carry 250/500/100 underlying to qualify.”
Why car insurance minimums get changed
In almost all cases, compulsory auto insurance requirements are the work of state lawmakers.
Compulsory auto insurance laws are written in state law. Insurance commissioners cannot change them, so new legislation must be passed to push up the required minimums.
Changes can be challenging to push through, and often, minimum limits stay the same for decades, even though medical costs have skyrocketed as well as the sticker price of a new car.
In most cases, these changes are welcomed by trial lawyer groups and many drivers (at least the insured ones) and opposed by insurance companies and consumer groups who fear it will raise rates, leading to more uninsured drivers.
The most common reason for increasing state minimums is that outdated minimums fail to cover ever-increasing medical costs and the cost to repair or replace a damaged car. In addition, states often have to pick up the tab on injuries, which can also be a motivator.
“One of the main reasons that states increase their insurance liability limits is because the state gets stuck with medical expenses and taking care of people who have been significantly injured in accidents,” says Guy S. DiMartino, a personal injury lawyer in Leesburg, Florida.
What happens if you don’t have UM/UIM coverage?
Low minimum limits often leave the victim of a car accident on the hook for medical expenses, especially if they are not carrying uninsured/underinsured coverage.
“Once the at-fault policy (the insurance policy of the person who hit you) is depleted, we have to look at the client’s first-party insurance and hope they bought uninsured/underinsured coverage on their policy,” says Justin Lovely with The Lovely Law Firm in Myrtle Beach.
If you are not carrying uninsured/underinsured coverage, your medical bills and car damage may be your responsibility.
“The problem we most often see is that while that underinsured coverage was offered, clients try to keep their premiums low and don’t purchase the UIM coverage, making the at-fault policy the sole recovery,” Lovely says.
In a state like Florida, this can get nasty real quick for an injured person.
“Often, an emergency visit alone will exhaust $15,000 in coverage, leaving the injured person on the hook for medical bills,” Lovely says.
This brings up the subject of personal responsibility and fairness.
“Another reason for increasing the minimum insurance limits is a personal responsibility. Raising the limits shifts the cost of medical bills, repairs, and other damages back to the at-fault driver,” says Dan Buba of Doehrman Buba in Indianapolis. “Without adequate insurance, many times these costs are borne by the person who was injured due to no fault of their own,” he continues.
It’s not just medical costs that must be considered when upping minimum limits. Property damage limits can be woefully outdated compared to the value of many vehicles on the road.
“In some states, the minimums are so low, they will not even cover a compact car if it is totaled. Technology and enhanced safety components have pushed up the cost of cars dramatically,” Guttman says.
What happens when minimum car insurance coverages are raised?
Compulsory insurance laws tend to go into effect around the beginning of the year or July 1, which is the start of the fiscal year in many states.
When do the new minimums impact your policy? It all depends on the details state legislators work out. Typically, the new limits won’t kick in until a specified period after passing the new law. This gives drivers some time before moving up to the new minimum.
In most cases, your policy will switch to the higher limits on the required date, and your rates will go up at the next renewal automatically.
Will my premium go up?
In almost all situations, the insurance cost will go up, but not dramatically. It is impossible to predict how much your specific premium will rise as many factors are considered when pricing insurance.
Increased minimums have a relatively small impact on your premium compared to other factors.
“If you get a quote on insurance, generally going from 25/50 to 50/100 is not that big of a financial jump in premiums,” Lovely says.
What can I do to save money?
If your required liability limits are headed up, there are a few things you can do to offset the increase in your premium, such as the following:
Shop around: Insurance companies rate risk differently, so premiums can vary dramatically between insurance companies. Shop a variety of insurance companies and make sure you are comparing apples to apples when it comes to deductibles and coverage levels.
Increase your deductible: Bumping up your deductible will absolutely lower your premium but always choose a deductible that you can afford if you have to make a claim.
Discounts: Insurance companies offer tons of discounts, so ensure you get every discount you are entitled to receive. Ask your agent to do a discount review to ensure all available discounts are applied to your policy.
Increase your limits: While this may not lower your premium, it could end up protecting your other assets – and typically, it doesn’t cost much to raise your limits. With some companies, consistently choosing higher limits can push you into a better tier. State minimums are woefully inadequate in a major accident — pushing up your insurance coverage levels can be a financial lifesaver.
— Mark Vallet contributed to this story.