Minimum Coverage, Maximum Risk

If you drive an older car, like a 2002 Honda Civic, liability-only makes sense. (hoobly.com)

Tough economic times lead to a lot of tough decisions for families. One of the worst decisions that can be made to “save money” is to drop a car insurance policy and to drive uninsured.

Driving without car insurance may not seem like a serious matter. But it opens one up to an endless spate of liability and law enforcement issues. We’ll be talking more about liability in a bit, so let’s just consider getting stopped by the police with no insurance.

Get caught driving without insurance, and you could face: massive fines and court costs and attorney’s fees that stretch into the thousands; inability to register your car; having your car towed and impounded, with associated towing and storage fees, and being unable to pick it up until you’re insured.

And to add to the pile of troubles, some states even go as far as suspending a drivers license under compulsory insurance laws. Most aren’t so tough, but “No Pay, No Play” laws have added to the financial stresses uninsured drivers may experience.

In a nutshell, “No Pay, No Play” prevents the uninsured from ever receiving money from pain and suffering attributed to another driver who was at-fault for an accident. These laws are on the books in: California, Iowa, Louisiana, Michigan, New Jersey and Oklahoma.

14 percent of the drivers on the road are uninsured, so the vast majority of drivers comply with the laws of their state. So most of us do have car insurance, and with finances a pinch, some families will only get a liability policy with state minimum coverage.

So, Minimum Coverage It Is

We have no issues with minimum coverage. It shows that a driver is in compliance with the law, and covers their liabilities to others. It’s superior to being uninsured, that’s for certain.

These drivers have insurance coverage. But that doesn’t mean state-minimum coverage isn’t without potential liabilities of its own, especially for the families that purchase it. Let’s look at some of the issues with state-minimum coverage.

Drawbacks, Potential Pitfalls

Car insurance is operated and regulated on a state level, not a national level. This means insurers deal with laws and regulations in many markets, and often, each state has its own quirks.

One of those quirks, from out perspective, is just how old many state-minimum coverage requirements are, dating back into the 1960s or 1970s. Just given inflation, it’s easy to see that these minimum amounts are often woefully out of date.

And that failure to reflect today’s economic conditions and realities mean that in the event of an at-fault collision where there are injuries, minimum coverage simply won’t be enough to cover the costs. We’ll discuss this further in just a bit.

Finally, because it’s liability insurance, your own property isn’t protected for at-fault crashes nor from being stolen or damaged by mother nature. Don’t make the mistake of believing your car is covered – because it’s certainly not in those situations.

Minimum Coverage vs. Medical Costs

To us, this is where the rubber meets the road. We said we’d discuss liabilities, and let’s take a look at how healthcare costs have outstripped state-minimum coverage.

State-minimums were designed to offer a blanket of minimal protection. Yet these minimum protections are based on decades old amounts of what those minimum protections are.

For example, in Montana, a driver must have a policy with a minimum of $25,000 of personal injury liability coverage, with a $50,000 maximum per incident. Personal injury is the portion of liability insurance that covers medical costs.

Montana’s “Buckle Up” program conducted a study six years ago to find out the average hospital charge of someone injured in a motor vehicle accident. If the person were wearing their seat belt, the average hospital charge was $36,420. If they were unbuckled, the average was an astounding $52,993.

In an at-fault accident, someone with minimum coverage would be on the hook for these excess costs above and beyond the amounts their insurance policy will provide. These costs could easily exceed tens of thousands of dollars or more.

This is referred to as being underinsured.

In the End, It’s Just Assuming Risk

We’ve demonstrated how minimum coverage can increase risk, and for families that choose state-minimum coverage, they’re not doing anything different than insurers do – they’re just assuming more risk for themselves.

And chances are, the risk will pay off. The average driver is involved in a car accident somewhere on either side of once every 18 years. Saving thousands of dollars on car insurance over those years might just make their decision to assume more risks worthwhile.

Just don’t risk going without any insurance coverage at all, please. Your fellow motorists – or anyone you’re involved in a collision with – deserve it.

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