You should have valid insurance coverage to cover liability

The majority of states in the United States require their residents to have valid insurance coverage to cover liability in order to register and drive a car in that state (Some states do not require insurance if the driver can show proof that they have a minimum amount of assets equal to the minimum amount of insurance that is otherwise required). Obviously, as an aspect of this requirement, each state requires a minimum amount of such insurance.

Furthermore, there may be different minimum requirements for each of the categories of general liability, uninsured motorist coverage and underinsured motorist coverage. Also, while all states that require drivers to have insurance require general liability insurance, not all of those states require drivers to have uninsured, underinsured and/or other coverages.

Whatever categories of coverages are required, the minimum requirements for each category are commonly set forth as a set of three numbers. For example, suppose that the minimum general liability coverage for State A is 20/40/10.

These are expressed in thousands of dollars. So this requirement is actually 20,000/40,000/10,000 dollars. The first number usually represents the minimum amount of required general liability insurance to pay for liability for injuries to any one person in a single accident (the per-person limit).

The second number usually represents the minimum amount of required general liability insurance to pay for injuries to all persons (combined) injured in a single accident (the per-accident limit). In other words, this is sort of like a minimum maximum. Do not worry, this will all make sense soon. The third number represents the minimum amount of required liability insurance to pay for property damage caused to another by the fault of the insured.

An example should help all of this to make sense. Suppose that Joey has insurance in the amount of 20/40/10, which is his state’s minimum. Joey is driving down the street one day and while playing with his radio negligently runs a stop sign and hits another car which is being driven by Bob and in which Helen is a passenger. Bob is injured and his injury claim is worth $8,000. Helen is injured and her injury claim is worth $25,000. The repairs to Bob’s car cost $12,000. How much will Joey’s insurance pay to Bob and Helen?

Joey’s insurance will pay Bob $8,000 for his injuries and $10,000 for the damage to his car and will pay Helen $20,000. That means that Bob gets shorted $2,000 for the damage to his car and Helen gets shorted $5,000 for her injury claim.

Why? Joey’s insurance pays a maximum of $20,000 per person up to a maximum of $40,000 per accident for personal injury claims and $10,000 maximum for property damage. Thus, the most that any single person can get from Joey’s insurance for bodily injury is $20,000 and the most that everyone in the car combined (Bob and Helen, in this case) can get for bodily injuries is a total of $40,000.

The most available for property damage is $10,000. It does not matter that Helen’s claim is worth more than the $20,000 maximum, the most she will get is the $20,000 per person maximum. Also, Bob cannot get more than the maximum $10,000 coverage for the property damage, even though the claim is for $12,000. Similarly, if there had been five people in the car, the most any single one of them could get is $20,000 and the most that all of them combined could get is $40,000.

So, if each of the five of them have $20,000 claims, none of them will likely get the full amount of their claim because even though none of their individual claims exceeds the single person maximum of $20,000 their combined damages of $100,000 exceeds the $40,000 maximum per accident, so they will have to decide how to divide the $40,000 maximum among them. Since there is not enough coverage to pay all of the claims, the injured parties will have to either make a claim for their underinsured motorist coverage or if they do not have any, their only other option is to sue the tortfeasor (Joey) and hope that he has enough money or assets to pay the additional damages.

Single Limit Policies

Some states, either instead of or in addition to the three category limits explained above, may allow insurance companies to sell a policy with a minimum “single limits” amount. In other words, the insurance company sells the insured a policy which provides a certain amount of coverage which is not broken down into per person/per accident/property damages limits. The single limit amount is the limit for bodily injury liability and/or property damage liability for an accident no matter how many people make claims as a result of an accident. In other words, suppose a policy is a single limits policy of $100,000. That $100,000 could be paid entirely for property damage or partly for property damages and partly for bodily injuries.

There could be one claim for bodily injuries for $99,000 and another for $1,000 without a per person limit affecting the first claim. In other words, it is very simple mathematically. There is $100,000 divide it however is fair. Which brings us to the biggest negative aspect of single limits policies.

Without the per person limits, it often makes it more difficult to come to a resolution of who gets how much. Suppose that there is $100,000 single limit, there are two people injured and each has a $200,000 claim. One has high medical bills but not a lot of pain and suffering and the other has low medical bills but a lot of pain and suffering. Should each get half? Should the one with more pain and suffering get more? Should the one with higher bills get more? This can itself lead to litigation about who gets how much.

Disputes over coverage limits are another good reason to purchase sufficient underinsured motorist coverage in order to be protected from having to be on the losing end of this argument with no other insurance coverage to turn to in order to pay the difference.