Is State Minimum Liability Enough? The Hidden Risks of Underinsurance

 


When you shop for liability insurance for a car, the "state minimum" option often looks like the most attractive choice. It is the most affordable way to stay legal and keep your vehicle on the road. However, there is a reason insurance experts often refer to state minimums as a "financial trap."

While these bare-bones policies satisfy the law, they rarely provide enough protection to cover the actual costs of a modern-day accident. If you are at fault in a collision that exceeds your limits, you are personally responsible for the difference. This means your savings, your home, and your future income could all be at risk.

In this guide, we will look at the real-world costs of accidents and why increasing your vehicle liability protection might be the smartest investment you ever make.

The Reality of Modern Accident Costs

Most state minimums were established years ago and have not kept pace with the rising costs of healthcare and vehicle technology. For example, many states only require $15,000 or $25,000 in property damage liability.

Consider these average costs in today’s world:

  • The Price of New Cars: With the average price of a new vehicle now exceeding $48,000, a $25,000 limit won’t even cover half the cost of replacing a totaled car.

  • Medical Expenses: A single emergency room visit can easily cost $3,000 to $5,000. If an accident results in a serious injury requiring surgery or long-term rehabilitation, medical bills can quickly soar past $100,000.

  • Legal Fees: If the other party decides to sue you for "pain and suffering" or lost wages, your legal defense costs alone could exhaust a small policy limit before a settlement is even reached.

What Happens When You Reach Your Limit?

If you have a $25,000 limit for bodily injury liability but the other driver’s medical bills total $75,000, your insurance company will pay their $25,000 and then "walk away." You are left on the hook for the remaining $50,000. This is not just a theoretical risk—it is a reality for thousands of underinsured drivers every year.

How Underinsurance Threatens Your Personal Assets

Many drivers believe that if they don't have $50,000 in the bank, they don't need to worry about being sued. Unfortunately, the legal system has many ways to collect a judgment over time.

1. Wage Garnishment

If a court enters a judgment against you, the winning party may be able to garnish your future wages. This means a percentage of every paycheck you earn for years to come could be automatically sent to the person you injured until the debt is paid.

2. Property Liens

If you own a home or land, a lien can be placed against it. This prevents you from selling or refinancing your property without first paying off the judgment from the accident.

3. Asset Seizure

In some cases, non-exempt assets—such as secondary vehicles, jewelry, or investment accounts—can be seized and sold to satisfy the legal debt.

Investing in higher auto insurance limits acts as a "firewall" between your life's work and a single moment of bad luck on the road.

Recommended Coverage: What the Experts Suggest

While every driver’s situation is unique, most financial advisors and insurance professionals recommend a "100/300/100" policy as a baseline for middle-class families.

  • $100,000 for bodily injury per person.

  • $300,000 for bodily injury per accident.

  • $100,000 for property damage.

The Surprisingly Low Cost of "Better" Coverage

One of the biggest myths in the insurance world is that doubling your coverage will double your price. In reality, the "risk" to the insurance company is highest for the first $25,000 of coverage. Jumping from a state minimum policy to a much safer 100/300/100 plan often only adds $10 to $20 to your monthly premium.

For the price of a few cups of coffee, you can move from "barely legal" to "truly protected."

Protecting Yourself from Other Underinsured Drivers

While we have focused on the liability you owe to others, there is another side to the story: Uninsured/Underinsured Motorist (UM/UIM) coverage.

Approximately 1 in 8 drivers on the road today are driving without any insurance at all, and many more are driving with only state minimums. If one of these drivers hits you, their policy may not be enough to cover your medical bills. By carrying high limits on your own liability-only or full coverage policy, you often have the option to add UM/UIM protection, ensuring that your insurance steps in to pay for your injuries when the at-fault driver can’t.

Conclusion: Don't Let a Minimum Policy Create a Maximum Problem

Choosing liability insurance for a car is a balancing act between your monthly budget and your long-term security. While state minimums are better than no insurance at all, they leave a massive gap that can lead to financial ruin after a major accident.

Take a moment to look at your "Declaration Page" on your current policy. If your limits are at the state minimum, it may be time to ask for a quote for higher limits. The peace of mind that comes with knowing your home and savings are safe is worth far more than the few dollars you save each month.


Understanding Liability Insurance for a Car: Your Complete Guide to Protection and Savings