March 24, 2010

When To Buy More Than The State Required Levels For Property Damage Liability

State governments regulate auto insurance, and set minimum levels of coverage. Purchasing auto insurance at the state level will likely result in very low car insurance quotes. However, it may not be nearly enough protection, making the insurance policy somewhat useless. There are times when one should buy more than the state required level for property damage liability.

Each state sets their own limits and those vary greatly. For example, Massachusetts only requires $5,000 of property damage, while Rhode Island requires $25,000. This does affect auto insurance quotes in the two neighboring states, likely with higher rates for better coverage. However, cheaper is not necessarily better. From the National Automobile Dealer’s Association, the average cost for a new car sold in America was $28,400. Now, say a person is found at fault in an accident which destroys this average new car. If the person has only $5,000 of property damage coverage, then the remaining $23,400 would be that person’s personal liability to pay. Thus, this policy is somewhat worthless. If that person had $25,000 in property damage coverage, then the remainder would be only $3,400. So, for purchasers living in states requiring only $5,000 of property damage liability coverage, it is very advisable to find a policy with significantly more than the state minimum.

This is not to say that more is necessarily better. First, all cars undergo depreciation. The car that cost $28,400 on the lot loses at least 10% of its value the moment it is sold. So, the average liability for even a new car will not be much more than $25,000. Also, this is the limit on a single case. Drivers who put large amounts of mileage on their cars do not require a larger amount to protect from the risk of multiple accidents. However, many insurance companies do not charge much more for a higher amount of coverage. It is important to see the prices for these different levels when searching for a car insurance quote. Buyers must balance coverage and cost, and wisely choose the proper balance. However, by the numbers, since the average car is not worth more than $25,000, this may be a good choice for the minimum level of property damage coverage.

For insurance, state minimums assure that no policy is completely useless. However, no insurance will cover 100% of every possible negative action that could ever occur. Buyers need to determine the likely amount of risk and the proper amount of coverage when searching for an auto insurance quote. With proper research and advice, buyers will get solid protection for an affordable price. The state minimum is not your only choice, it is up to you to decide.