Top Three Reasons to Avoid State Minimum Car Insurance
Whether it’s an ad with a general, a lizard or a catchy jingle, all of them say the same thing- “We’ll get you legal to drive.” But what does that really mean? And why should you care? We’ll start first discussing what being “legal to drive” in the State of Ohio means (i.e. state minimum car insurance) then end with the top three reasons to avoid state minimum car insurance (this is the why you should care part).
What being legal to drive in Ohio means
The state of Ohio has a financial responsibility law that states “No person shall operate, or permit the operation of, a motor vehicle in this state, unless proof of financial responsibility is maintained continuously throughout the registration period with respect to that vehicle, or, in the case of a driver who is not the owner, with respect to that driver’s operation of that vehicle.” For the purposes of this discussion, an Ohio car insurance policy satisfies this requirement.
So what does Ohio consider to be sufficient proof of “financial responsibility?” Liability coverage (bodily injury and property damage) in the following limits:
$25,000 for bodily injury to any one person$50,000 for bodily injury per accident$25,000 for property damage to property of others
The limits above are also referred to as the “state minimum car insurance limit” or “state minimum” for short.
In case you haven’t yet figured it out, these amounts, while better than nothing, are still pretty terrible. Keep reading why it’s simply not enough and why you should avoid state minimum car insurance.
Reason #1 to avoid state minimum car insurance
That word “limit” is super important for this discussion. Because if you purchase the limit shown above (25/50/25 for short), that’s all you get. A limit is a limit. When it runs out, the insurance company quits paying and YOU get to pay what’s left. For real. And in case you don’t think you’d ever reach this limit, here are some real life examples……
You’ve involved in a 4 vehicle accident (chain reactions are the most common). It’s your fault. Each vehicle suffered damage and multiple passengers suffered injury. It’s pretty likely that based on the severity of injury and damage that your limit is going to run out. And again, the remainder is left to be paid by YOU, not your insurance. Do you know the type of vehicle you’re going to hit? No one does. So if you plow into a semi truck, or even just an expensive pickup (some can cost $80,000 easy), you won’t have enough coverage to pay for the damage. Do you have an extra $30,000, $40,000 or whatever it ends up being sitting around? I don’t know many people who do (I sure don’t). And what about the injuries that people experience? A fatality is certainly the worst case scenario, but what about the situations where the injured party has lifelong injuries that affect his ability to earn an income? Or just get through the tasks of daily living?
Everything I’ve just described I’ve seen happen. It doesn’t take some catastrophic accident to reach the limit. And when that limit is used up, the insurance company has exhausted its obligation. It will be up to you to pay any balance due for injuries and property damage.
And working off that, we’ll move to reason #2…
Reason #2 to avoid state minimum car insurance
So when the policy limit is gone, you get to personally pay out of your pocket. How will you get that money?
Sell your real estateSell vehiclesCash in retirement plansDrain bank accountsSell personal possessions
None of these solutions are great, but they may be necessary in order to pay the debt you owe. Not only are you dealing with the aftermath of a car accident, but now you’re worried about getting the cash to pay the balance. And this would suck on an epic scale. A higher liability limit on your car insurance would aim to reduce the need to do any of the above.
Reason #3 to avoid state minimum car insurance
So many younger folks may say, “I’m just starting out and have nothing for anyone to take. So when the limit runs out, oh well.”
I ask them, “What if this affected your ability to earn an income in the future?”
After some puzzled looks, I explain that the State of Ohio allows wage garnishment, which means that a set amount can be deducted per paycheck, to pay the amount yet owed. This gives you less per paycheck for things like your normal bills, groceries, etc.
How much less? Ohio generally follows the federal laws pertaining to garnishment. The law states, “For ordinary garnishments (i.e., those not for support, bankruptcy, or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25% of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. For complete information, the Department of Labor has published a handy fact sheet, The Federal Wage Garnishment Law, Consumer Credit Protections Act’s Title III, from which this information was taken.
I was unable to find the maximum length of time that garnishment is permitted, but even if it’s just a few years, that’s a big deal. It leaves you less money to live on every paycheck, and potentially for a long time.
The lesson here?
Buy as much liability insurance as you can afford. It’s much cheaper to pay the premium for higher than state minimum limit than to pay for the balance of a claim when your insurance has been exhausted (and over time too!)
