Case Study: Real Data That Shows Why State Minimum Liability Auto Insurance is a Rip Off!

​In order to save money, many people choose to skimp on their auto insurance liability coverage, and go with the lowest limits that their state will allow. As I have preached to people countless times, this is a very bad idea! But no matter how hard an agent tries to get the point across, not too many listen.


    So, I decided to do a case study on auto insurance liability coverage to see just how much an increase in coverage raises auto insurance premiums. So for my case study, Here's what I did:

• I took real quotes that I have recently ran for potential customers and compared the liability premiums at different levels.
• The 3 different levels I chose were: 25/50/25, 50/100/50, & 100/300/100. I chose 25/50/25 as the baseline because it is close to most states' minimum liability requirement. I chose the other levels because they are common among most auto insurance companies.
• I recorded the premiums for each level using $1.00 as the 25/50/25 baseline, then compared them to the cost at different levels.

Key Finding: Significantly increasing liability coverage only amounted to pennies on the dollar more in premium.

• Doubling your liability coverage from 25/50/25 to 50/100/50 increased liability premium by only 3 to 4%.

• Increasing coverage from 25/50/25 to 100/300/100 increased liability premium by only 21-26%.

• Premium increases were fairly consistent all across the board. The only group that was not consistent were drivers with the very worst driving records (less than 5% of the drivers studied). They paid more of an increase than listed above. But all others fell into the price ranges listed above.

Notes about the case study:

• Change in liability coverage was the only variable change from each quote. No other variables were changed or considered.

• Quotes were ran as is, it didn't matter clean record vs bad record, preferred vs. non-standard, homeowner vs. renter, liability only vs. liability plus physical damage coverage ......... All were included in the case study.

• Which state a person lived in didn't make a difference. While liability coverage costs vary state to state, the percentage increase from one level to the next was constant among the six states compared.

    Summary:


    When considering low levels of liability coverage, hopefully this case study will make you think twice, and finally sink in. Doubling liability coverage only amounted to about 3 cents on the dollar, and taking even higher levels only amounted to about a quarter on the dollar. As I've mentioned before, state minimum liability coverage (no matter which state you live in) is lousy!  These small increases in premium are well worth the higher coverage that you get for it.


    Also keep in mind that Uninsured Motorist (UM) coverage is very important, and it is limited to the amount of liability coverage you select. So if you go skimpy on liability coverage, you force yourself to go skimpy on UM coverage as well.


   
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