Credit: Shutterstock photoBodily injury and property damage liability insurance is the bare minimum auto insurance required by drivers in 48 of the 50 states. Together, they signify that if you were to get into a crash, you would be able to pay for another person’s medical and/or car damage bills. Each state has a minimum amount that you are required to carry, in most cases however, that is not enough.
Equipping yourself with too little BI and PD car insurance is potentially financially ruinous. The average non-fatal car accident injury costs $67,000 in the U.S. Get into a multi-car accident, or one with many people, and the bills can soon run well into the hundred thousands. Conversely, you can’t get so much coverage that you are unable to afford your monthly payments. So how can you figure out how much BI and PD you need?
BI and PD Limits
First, you should be familiar with BI and PD limits. They are usually written in an ##/##/## format where the first section is the BI limits for one person, the second the BI limits for an entire accident and the third number your property damage limits. For example, if you had 20/50/20, you have $20,000 BI for one person, $50,000 for an entire accident, and $20,000 for property damage. You can read more about the differences between the three here.
What is High and What is Low?
For perspective, the lowest state minimum is California, which requires to you have at least 15/30/05 limits. Alaska on the other hand requires 50/100/25, the largest in the country. Essentially, anything under 30/65/15 is considered low in most states. On the other side of the spectrum, in some states GEICO allows you to carry up to 500/500/100 coverage. Essentially, the amount you should have is somewhere in between those values. So how do you narrow it down?
How Much Do You Drive?
The first step to getting the right limits is by assessing how much you will be driving. Statistics dictate that the more you drive, the more likely you are to get into an accident. If you are a safe driver, and only drive once a week, the odds of you getting into an accident are low. If however, you commute to work everyday, your chances are greater. If you fall into that latter group, you should definitely be opting for more coverage.
The Car You Drive
Not all cars crash the same way. Do you drive a clunker from the 60’s with very little safety features, or a tank-like mini-van? A car with a lot of safety features would reduce the overall medical and physical damage incurred by an accident. If you have a car with outdated technology however, the crash will most likely cause more damage and possibly more medical damage as well. We would recommend more coverage if you fall into the latter category.
Though note, the type of car itself will not influence the price of BI or PD insurance, but will affect the cost of comprehensive and collision insurance.
Your Assets
If you do get into a costly accident, you may get sued if your coverage cannot meet the expenses of the other driver. You have to think beforehand what may be at risk if you were to get sued. For example, if you have sizeable assets, another insurance company can go after them to make up for the gap in coverage. On the other hand, if you have very few assets, a lawsuit is less worthwhile to pursue. In that case it is more likely for the injured driver to settle for whatever your insurance company pays out. Thus, if you have a lot to lose, it’s best to get more coverage to begin with.
The Cost
Finally, you have to consider the cost difference between high and low coverage. It may seem that going from $50,000 worth of coverage would cost 10x more for $500,000 worth. That is far from the truth though. We got a GEICO quote from Illinois and found the cost of 50/100/25 worth of coverage is only $140 cheaper per year than 250/500/100 coverage. For just $12 more a month, you can quintuple your coverage. Odds are you won’t even need that much coverage, so the price will be even lower for the right amount of coverage you need.
Final Thoughts
BI and PD coverage are extremely important. If you are not adequately covered, an accident can cost you thousands of dollars. By carefully assessing the information we just laid out, you should be confident you are getting the right amount. Remember though, that it is always important to shop around for the best car insurance price. There are many companies each with their own price tag. There is always one that will provide the amount of coverage you need, at the price you can afford.
The article Basic Car Insurance: How Much Should You Be Carrying? originally appeared on ValuePenguin.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
