Auto Insurance Basics: Minimum Coverage Explained

Minimum auto insurance coverage is the amount of car insurance that is legally required in your state. This typically includes liability insurance, which covers any injuries or damages you cause in a car accident, including those to the other driver and their passengers. The minimum amount of coverage per person and per accident varies depending on your location. For example, in North Carolina, drivers are required to have $30,000 in bodily injury coverage per person, $60,000 in bodily injury coverage per accident, and $25,000 in property damage coverage per accident. Other types of coverage that may be required in some states include uninsured/underinsured motorist coverage, personal injury protection, and medical payments coverage.

Bodily injury liability

The amount of bodily injury liability coverage you need depends on the state you live in and the level of protection you want. Some experts recommend having bodily injury limits of at least $100,000 per person and $300,000 per accident. It's generally recommended to have enough coverage to protect your assets in the event of a lawsuit.

If you are found to be at fault in an accident and your bodily injury liability coverage is not sufficient to cover the other party's expenses, you may be sued for the remaining amount. This could result in significant out-of-pocket expenses and put your savings, house, and other assets at risk.

Property damage liability

In addition to property damage liability, bodily injury liability is another component of auto insurance that is required in most states. This covers the cost of injuries to other people involved in an accident for which you are at fault. Bodily injury liability typically includes medical and funeral expenses, lost wages, disability, rehabilitation, pain and suffering, lawsuit settlements, and legal expenses.

Together, property damage liability and bodily injury liability are the two main components of liability coverage in auto insurance. Liability coverage protects you financially if you are found to be at fault in an accident by covering the cost of repairs, replacements, and legal expenses related to the damage you have caused.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage, often referred to as UM or UMBI, pays for medical expenses if you or your passengers are injured in an accident caused by a driver with no insurance or a hit-and-run driver. It can also cover lost wages, pain and suffering, and funeral expenses. In some states, you can also purchase uninsured motorist property damage (UMPD) coverage, which pays for repairs to your vehicle if it's damaged by an uninsured driver.

Underinsured motorist coverage, or UIM, comes into effect when the at-fault driver doesn't have enough insurance to cover your medical bills and other losses. It pays you the difference between your total damages and the at-fault driver's policy limit, up to your own policy limit.

In California, for example, UMC/UIM coverage is mandatory unless you sign a written waiver. The default coverage offered is typically $30,000 for bodily injury per person, $60,000 for total bodily injury per accident, and $3,500 for property damage. However, you can opt for the minimum coverage allowed under state law, which is $15,000 for bodily injury per person, $30,000 for total bodily injury per accident, and $3,500 for property damage.

When deciding how much UMC/UIM coverage to purchase, it's recommended to buy as much as you can afford. A policy of $300,000 to $500,000 is often suggested. This coverage is especially important if you have a high-deductible health insurance plan, as it can help cover medical expenses without the high deductibles and health insurance co-pays.

Personal injury protection

PIP coverage includes reasonable medical costs, such as surgeries, medications, diagnostics (X-rays, CT scans), prosthetics, nursing care, physical therapy, and medical devices. It also covers 80% of lost wages due to injury and recovery, as well as the cost of replacing necessary services normally provided by the injured party, such as childcare or household maintenance.

In Texas, for example, insurance companies are required to offer every driver at least $2,500 of PIP insurance, which can be increased to $5,000 or $10,000 for additional financial protection. While PIP insurance is not mandatory in Texas, drivers must sign a waiver if they choose to decline the coverage.

While PIP is not available in North Carolina, drivers in this state can benefit from other types of optional coverage, such as medical payments (MedPay) coverage, which is available in at-fault states and covers medical bills for the driver and their passengers after an accident.

Medical payments coverage

In states that don't offer MedPay, personal injury protection (PIP) coverage is usually available instead. PIP is similar to MedPay in that it helps pay for medical bills after an accident, but it also covers lost wages if the insured is forced to miss work due to their injuries, whereas MedPay does not. PIP limits and costs are typically much higher than those of MedPay.

While MedPay is not legally required in most states, it can provide valuable financial protection in the event of a car accident, especially for those without health insurance. It's important to note that MedPay won't cover expenses related to missing work or injuries caused to other drivers. When deciding on the amount of MedPay coverage to purchase, it's recommended to consider the limits of one's health insurance coverage and choose a MedPay limit that can help cover any potential gaps in medical expenses.

In summary, Medical Payments Coverage is an optional but important component of auto insurance that provides financial protection for medical expenses resulting from a car accident, offering peace of mind and helping to alleviate the financial burden associated with unexpected medical costs.

Frequently asked questions