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, and sometimes legislators increase the amount of car insurance you need to meet the minimum. If you are in a state where this happened, and you only have the prior, lower amount of insurance required, are you still covered? What happens to your rates and policy limits? Drivers in Delaware, Connecticut, Kentucky, Indiana and Nevada will certainly want to know, as you’ll see below, how liability minimums are increasing in those states, but motorists everywhere should be aware of how their coverage is affected when liability laws change.
- Delaware: On Dec. 13, 2017, the minimum liability limits increased from 15/30/10 to 25/50/10.
- Connecticut: On Jan. 1, the minimum liability limits increased from 20/40/10 to 25/50/25.
- Kentucky: On Jan. 1, the minimum property damage liability limit increased to $25,000 from $10,000.
- Indiana: On July 1, the minimum property damage liability limit will increase to $25,000 from $10,000.
- Nevada: On July 1, the minimum liability limits will increase from 15/30/10 to 25/50/20.
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.
Keep reading to 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. Here we answer all the questions on this topic.
What are compulsory insurance minimums?
In almost every state in the country, you need to 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 that you are responsible for if you are found legally liable for an auto accident. It will help pay the medical bills of an injured person or repair damage to other’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 as well as hospital care and may cover items such as follow up visits and wheelchair or crutches.
- Lost Income: If the person you injured is unable to work due to physical therapy or a long recovery time, your bodily injury insurance may help pay compensation for their lost income.
- Legal Fees: It’s possible that 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 that you cause to other people. 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 a minimum amount of liability insurance. The required minimums can vary dramatically between states, and in almost all cases, the state-required minimums are too low to fully protect you in the event of a serious accident.
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 would 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,” continues Guttman.
In some states, other coverages are required in addition to liability so check with your insurance agent to determine the required minimums in your state.
To find out the minimum car insurance, you need to drive legally in your state, see our liability requirements by state page.
How and 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 are not able to change them,” confirms a National Association of Insurance Commissioners (NAIC) spokesperson. This means that new legislation must be passed to push up the required minimums.
Changes can be difficult to push through and often minimum limits stay the same for decades, despite the fact that medical costs have skyrocketed as well as the sticker price of a new car.
As an example, Connecticut recently upped their minimums from 15/30/10 to 25/50/25. The change went into effect on Jan. 1, 2018 but this is the first change to the minimum required insurance levels in 46 years. Connecticut is not an anomaly, Illinois raised their minimums in 2015 for the first time in 24 years.
In most cases, these changes are welcomed by trial lawyer groups as well as 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 fact that outdated minimums fail to cover ever raising medical costs and the cost to repair or replace a damaged car are the most common reasons for jacking up minimums. In addition, states often have to pick up the tab on injuries, which can also be a motivator.
“One of the main reason 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.
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 clients (the person who was hit) 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 end up being 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,” continues Lovely.
In a state like Florida, this can get real bad 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,” warns Lovely.
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,” points out 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 when compared to the value of many vehicles out 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,” points out Guttman. “Minimum coverages have simply not kept up. In Maryland, the State Minimum for Property Damage is $15,000 while the average price of a new vehicle is almost $35,000,” he continues.
Delaware’s previous property damage was a mere $5,000. The recent change pushed that up to $10,000, still leaving it still well below many states, $25,000 is a common property damage amount.
As a car owner, this is important because you don’t want your liability limits too low, or claims could breach your liability limits and leave you open to be looked at personally for any compensation still due. Also, it can suddenly become important if a driver carrying the state minimum hits you. If your car is totaled and is worth more than their limit, say a lowly $5,000, you are left going after the other party for more compensation or instead making a claim with your collision coverage (if you have it).
According to J.D. Power and Associates, in 2017, the average price of a new car was $31,400. Edmunds.com puts the average cost of a used car in 2016 at $19,189, putting it well above that $5,000 minimum level.
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 the new law is passed. This gives drivers a bit of time before having to move up to the new minimum. Some states also allow for a grace period where the driver doesn’t have to comply until their first renewal,” advises an NAIC spokesperson.
When Illinois changed their limits it only affected policies that were purchased or renewed after Jan. 1, 2015 so you could have been driving on the old minimums until your policy came up for renewal.
“In other cases, the law might say the new minimum limits apply on a date certain. If so, all the in-force polices with limits below the new statutory minimum would be adjusted upward to meet the new standards,” says an NAIC spokesperson.
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. “Insurance policies generally have what is known as a conformity to statute provision,” advises an NAIC spokesperson.
As an example, a section from an American Family Policy reads as follows: “This auto liability insurance conforms to any motor vehicle liability insurance law to which an insured person is subject by using a car in any state.”
This simply means that if you cross into a state that has higher limits than the one your car is insured in, your policy will automatically cover the higher limits. In the case of the limits being raised in your state, the policy will adjust to those higher rates, and your premium will reflect the new price at your next renewal.
Will my premium go up?
In almost all situations, the cost of insurance 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.
When Illinois raised their rates, the legislation estimated that, on average, drivers would see a $75 increase per year which breaks down to $6.25 a month, hardly a budget buster for most people. Ohio estimated an increase of 25 percent, pushing the average premium to $83 a month, a $16 increase.
Increased minimums have a relatively small impact on your premium compared to other factors. “If you get a quote on insurance, generally going form to 25/50 to 50/100 is not that big of a financial jump in premiums,” says Lovely. Your driving record, credit history, and the total mileage you put on your car every year are all major factors that will have a much bigger impact on your insurance costs.
This bump in cost and the belief that more drivers will hit the road without any insurance at all is the main argument that opponents to raising minimum coverage cite. “This is the argument I hear most often from people hoping to keep minimums low,” says Lovely.
However, there is little data to back up this belief. Maine, which has some of the highest minimums in the country at 50/100/25, also enjoys the lowest rate of uninsured drivers, with only 4.5 percent of Pine Tree State drivers cruising around without insurance.
Florida, on the other hand, only requires drivers to carry $10,000 personal injury protection (PIP) and $10,000 property damage liability (PDL) but has the highest rate of uninsured drivers, a whopping 26.7 percent, according to the latest data from the Insurance Research Council (IRC).
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. Here are a few things to consider:
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 in the event that you have to make a claim.
Discounts: Insurance companies offer tons of discounts so make sure you are getting every discount you are entitled to receive. Ask your agent to do a discount review to make sure all available discounts are being applied to your policy.
Consider more insurance: 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, choosing higher limits consistently can even push you into a better tier. State minimums are almost always woefully inadequate in a major accident. Pushing up your insurance coverage levels can be a financial lifesaver if you are responsible for an accident.
— Mark Vallet contributed to this story.