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Risky business: Driving while uninsured

Driving while uninsured

Liability auto insurance, which pays for property damage or injuries you cause to others, is required in nearly every state. But when economic times are tough, many drivers simply allow liability coverage to lapse to save money.

People who drive without this basic coverage are risking financial ruin. Injuries associated with serious car accidents easily can cost hundreds of thousands of dollars in medical bills and property damage.

"You're at risk of losing every asset you have if you are uninsured," says Janet Ruiz, a spokeswoman for the nonprofit Insurance Information Institute (III).

Drivers who lack auto liability coverage are considered uninsured, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.

"That is a basic car insurance policy," Walker says. "If you buy a bare-bones policy, the minimum requirement is liability coverage."

Kevin Foley, a New Jersey insurance agent, says driving without auto liability insurance is a gamble that's not worth taking. Even drivers who have few financial assets can have their future earnings "attached" by a court, if they're found guilty of causing injuries or property damage. An attachment of earnings is a process by which a defendant's wages are taken by a court to pay off a debt.

"When you drive without insurance, it is like playing financial Russian roulette," Foley says.

States with the highest percentage of uninsured motorists

In 2012, 12.6 percent of motorists, or about 1 out of every 8 drivers, lacked car insurance, according to a 2014 study by the Insurance Research Council. That's bad news for drivers who don't carry uninsured/underinsured motorist coverage.

According to the council, the following states had the greatest percentage of uninsured motorists in 2012, the most recent year for which statistics are available:

  1. Oklahoma 25.9 percent
  2. Florida 23.8 percent
  3. Mississippi 22.9 percent
  4. New Mexico 21.6 percent
  5. Michigan 21 percent
  6. Tennessee 20.1 percent
  7. Alabama 19.6 percent
  8. Rhode Island 17 percent
  9. Colorado 16.2 percent
  10. Washington 16.1 percent

Buying minimum coverage: Pros and cons

Many drivers buy the minimum amount of auto liability coverage required by state law. The drawback is that minimum coverage may not offer enough protection since state minimums often fall far below the cost of injuries and property damage resulting from serious collisions.

The main benefit of buying minimal liability coverage is that you can drive legally and keep your annual car insurance premium low. The danger is these policies provide little financial support if you are at fault in an accident that causes major injuries or property damage.

According to the III, in 2013 -- the most recent year for which statistics are available -- the average auto liability insurance claim for property damage was $3,231. The average auto liability claim for bodily injury was $15,443.

Because car accidents can exceed those amounts, the III generally recommends a minimum of $100,000 in bodily injury coverage per person, $300,000 in bodily injury coverage per accident, and $100,000 in property damage protection per accident. This is known as a 100/300/100 policy. Minimum policies required by state law typically fall far below this threshold. For example, in Alabama, the minimum requirement is a 25/50/25 policy.

To be sure your liability policy protects your assets, add up the value of your possessions. This should include your cars, home equity, bank accounts, savings and investment portfolios. The dollar amount of auto liability insurance you have should equal the total. The more assets you have, the more you have to lose if you are successfully sued following a car accident, Ruiz notes.

While a 100/300/100 policy covers most people's needs, drivers with a great deal of wealth may choose to buy an umbrella liability policy. This provides additional coverage for both auto and homeowners policy claims.

Typically, $150 to $300 a year can buy you a $1 million personal umbrella liability policy, according to the III.

Ruiz adds that many states have low-income insurance programs to help drivers who are financially challenged. Such programs typically provide only the minimum liability insurance required by state law, however. You can learn more about these auto insurance assistance programs by contacting your state department of insurance.

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