48 years is a long time! It seems even longer when you consider the last time Arizona updated its auto insurance requirements was in June of 1972. Richard Nixon was President and Jack Williams was the Governor of Arizona. (Don’t worry we had to look that up too!) Beginning July 1, 2020, a new Arizona law will require insurance policies to provide minimum coverage of $25,000 per person, $50,000 per accident, and $15,000 in property damage of liability insurance on motor vehicles. While this change is long overdue, many drivers are still confused about what it actually covers, or how much more is needed to be properly insured. Here are a few helpful tips you should know about auto insurance coverage, from the perspective of a personal injury attorney.
What does the state minimum actually cover?
The new state minimum requirement refers to the liability coverage of your policy. This is the maximum amount that your insurance company would be required to pay to another party if you are responsible for an accident. The $25,000 and $50,000 refers to the bodily injury portion that your insurance company would be required to pay related to the injuries and medical costs of the other person(s). The first number ($25k) refers to the maximum amount for a single person, and the second number ($50k) refers to the total maximum amount for the entire incident. The third number ($15k) is the maximum amount for property damage and is used for repairing the other person’s car or any other physical property damaged in the accident. A very important point that most people may not know is if the bodily injuries or property damages of an accident are more than these amounts, they could still be held financially responsible for the balance. Your insurance company is only required to pay up to these limits; anything additional will be your personal responsibility.
What does “full coverage” mean?
There are many different definitions used to describe what full coverage is or includes. If a person is driving a vehicle that is financed by a bank, the bank will require that the lien holder carry both collision and comprehensive insurance, in addition to the state-required minimum for liability. This is the most common understanding of what “full coverage is”. It ensures that in the event that you cause an accident, or the car is damaged in another way including theft, vandalism, or natural disasters the insurance company will still pay for the repairs or replacement cost of the vehicle. If the cost to repair the vehicle is more than value of the car or the amount of damage is greater than the “total loss formula” threshold, the car is considered totaled. The insurance will cut a check for the actual cash value (ACV) of the car which will go towards paying off any lien that a bank may hold on the vehicle first. Any money left over would then go to the owner of car.
In an increasing number of cases, the amount owed is more than what the car is worth. This is often called “being upside down”, and can quickly put a person in financial hardship. GAP insurance is an additional type of coverage that will cover this shortfall, however, not all insurance companies offer this type of coverage.
What is UM/UIM and is it important?
Uninsured (UM) and Underinsured (UIM) Motorist Coverage are additional insurance coverages that are highly recommended to include in your policy. In a 2017 study, the Insurance Research Council found that 12% of drivers in Arizona are uninsured. In the event that you are hit by a person who was driving without insurance, and you only have state minimum coverage on your vehicle, there would be no insurance coverage to pay your medical bills or repair your car. UM Coverage changes that and provides you protection even when others do not follow the law.
Underinsured Coverage would apply when the other driver did have insurance, but the amount was too small to cover all the bills. The new 2020 law helps to reduce that possibility, but many serious accidents go well beyond these new limits. If you are involved in a large accident involving many people or had major injuries, there is a high possibility of this coming into play. UIM coverage can increase the amount available for you and those in your vehicle and allows you the control the purchase what level of coverage is appropriate for your circumstances. UM/UIM coverage gives you that additional protection from these potential situations, closing a genuine pitfall of being in an accident where insurance coverage is not available or not enough. It would be hard to argue a person has “full coverage”, if they did not include this very important option on their policy.
Paying for healthcare treatments after an accident can still place a financial burden on you, even if you are not at fault. Many healthcare plans have high deductibles that must be reached first, or have out of pocket expenses and copays. Medical Payments Coverage or “Med Pay” covers medical expenses for you or anyone else in your car, regardless of who is at fault up to the level stated on your policy. The cost for this additional coverage is usually very low and provides significant financial assistance in these situations. A total of $5,000 of coverage is recommended.
Full coverage is different than fully protected.
The goal of auto insurance is to provide financial protection to people who are involved in an accident. Even if a person were to have all the coverages mentioned above, they still might not be fully protected, if the levels they have are too low. Having only “minimum” amounts can potentially save you money, but it can also put you in a potentially bad situation where you might be personally responsible to pay for additional amounts not covered by insurance. That means people must make a judgment call on what is the right level for them based on their individual budget. In general, your coverage levels should be the same or higher as the total amount of the assets you own. Example: If you drive a $35,000 automobile, you should have at least that amount in property damage coverage. Your overall net worth is usually a good estimator for the other levels of coverage, but in general 100k/300k for bodily injury and UM/UIM is a good starting point, even if you don’t have quite that much in assets.
Good behavior is rewarded.
There is no question that good insurance costs more. It’s real money that insurance companies may potentially payout on your behalf. For some, good insurance coverage might not be a financial option; even more accurate if a person has a reckless driving history. Speeding tickets, DUI, and moving violations can increase the cost of coverage dramatically. Obeying the law and practicing good driving habits will allow you to get better coverage at a lower price. For a good driver, doubling the amount of coverage may cost as little as an additional 10% of your annual premium! It’s worth the effort in terms of savings to be a good driver and do your part in keeping our roads safe.
Be smart, be safe.
If you must make a difficult decision on the coverage you have because of financial reasons, do so intelligently. Know what you are giving up and what risks you are taking as a result. Make a goal to practice good driving habits and put yourself on the right path to have affordable “full coverage”. The increase in Arizona state minimums limits is a welcomed improvement that is long overdue. These new 2020 limits will provide greater levels of resources in the unfortunate event that you are involved in an accident.
Zachar Law is a Phoenix-based Personal Injury Firm serving accident victims since 1997.
Explaining the Basics of Car Insurance
Suzie Zachar Irwin
ZACHAR LAW FIRM