TYPES OF CAR INSURANCE COVERAGE & COVERAGE LIMIT RECOMMENDATIONS

North Carolina personal injury lawyer Carl Nagle offers the following information about the types of car insurance found on NC car insurance policies, and the amount of coverage he recommends for drivers who want peace of mind.  While the article is specific to North Carolina insurance policies, the types of coverage and the coverage limit recommendations apply to all states.  Even though the titles of different types of coverages may differ, the way insurance is sold and applied is nearly the same in all 50 states.  According to attorney Nagle:

When we buy car insurance, insurance companies rarely explain the types of coverages that they offer, how the coverages operate, or the limit of coverage that a driver should carry.  Unfortunately, if you cause a car accident, you are personally responsible to pay for all damaged personal property and all injuries suffered by every victim of the collision.  For the injury claims, the at-fault driver owes for all accident-related medical bills, all lost wages for work missed due to injury, and additional cash payment for all victims’ pain and suffering.  If you do not have enough coverage for these expenses on your car insurance policy, you can be held personally responsible to pay for all losses that exceed your coverage.  Most people don’t know that if they cause a serious car accident, they can lose their home, their bank accounts and all other assets if they don’t have high enough insurance coverage limits.

North Carolina’s legislature recently updated the NC Financial Responsibility Act to increase the minimum liability insurance required on all North Carolina auto insurance policies.  However, the increased limits do not take place until July 1, 2025.  For this article, we present the current coverage options in our state.  If you come across this article after the new laws take effect, our recommendations remain relevant and wise for all motorists as we always encourage motorists to carry higher limits than the state requires.

Here are the types of coverage that are available on a North Carolina car insurance policy and our recommendations for the amount of coverage you should carry:

PROPERTY DAMAGE LIABILITY

All NC auto policies include property damage liability coverage, and our state’s minimum mandatory coverage is currently $25,000.00.  If you cause an accident and damage luxury car or SUV, you could easily exhaust this coverage.  The $25,000.00 is the total amount available on the policy to pay for towing from the collision scene, storage of the vehicle before repairs begin, and the full cost of all repairs OR replacement of the vehicle if this is cheaper than the repair cost.  Also, the $25,000 limit applies, even if you cause damage to multiple vehicles.

According to Kelly Blue Book, the average cost of a new car or SUV stands at $48,000 as of March, 2023.  Thus, $25,000 in total car damage coverage can leave you owing a lot of additional money if you cause a total loss to a relatively new vehicle.  Also, the $25,000 coverage limit is a per-accident limit.  This is rarely enough coverage in a multi-vehicle collision.

We recommend that you carry $100,000 in property damage liability coverage.  This level of coverage would be enough coverage for most collisions, thus giving you peace of mind and financial security.

BODILY INJURY LIABILITY

North Carolina currently mandates $30,000 per-person and $60,000 per-accident in bodily injury liability coverage.  This “split limit” approach to coverage allows a single crash victim to collect no more than $30,000, even if their injuries are severe and debilitating.  The per-accident limit of $60,000 limits all victims’ claims to just $60K in total benefits.  If a driver causes a three vehicle collision and there are five victims hospitalized and multiple surgeries, they must voluntarily agree to divide the $60,000 between all victims.  If the group does not agree to share the available coverage, they can sue the at-fault driver and hold him/her liable for the full value of the injury claims.

North Carolina law will change effective July 1, 2025, with the minimum limits for bodily injury liability coverage increasing to $50,000 per-person and $100,000 per-accident.  While this is a positive change, the new mandatory limits are still too low for collisions that result in meaningful or lasting injuries.  Our law firm only handles serious injury claims arising from North Carolina roadway collisions, and we commonly see medical bills for a single crash victim that vastly exceed $50,000.  It is therefore financially risky to only carry the minimum mandatory coverage limits for property damage and personal injury.

Fortunately, it is very inexpensive to opt for higher liability coverage limits.  Under the current insurance rate structure in North Carolina, most of the cost of a higher-limits auto policy is the premiums for the underlying minimum limits policy.  Thus, choosing higher coverage limits typically results in just a slight increase in monthly premiums.  For a very small monthly investment, you can easily purchase higher coverage limits and truly protect your home, bank accounts, investment accounts and other assets.

When you buy bodily injury liability coverage, we recommend that you carry coverage limits of at least $100,000 per-person and $300,000 per-accident.  The jump to the $100K/$300K costs only a little more, and the coverage you have will leave your insurance carrier responsible for all but the more severe collisions, and give you true financial security and peace of mind.

If you are a high net worth individual, you should carry either $250,000 per-person and $500,000 per-accident, or $500,000 per-person and $1,000,000 per-accident. If you cause a severe collision resulting in significant injuries, attorneys for the crash victim typically perform an asset search and will see that you have wealth, real estate and assets that could be reached following trial.  This will motivate them to refuse to accept your coverage limits and come to you demanding additional cash payment.  By choosing high-limits bodily injury liabaility coverage, you avoid this financial risk.

If you own a home, your homeowners insurance company can offer/provide additional “umbrella” coverage, which is excess liability coverage that pays only if you cause a collision which results in injury claims that exceed your car insurance limits.  Umbrella coverage is fairly inexpensive, and the coverage limits are typically $1 million or more.  We strongly recommend umbrella coverage for all home owners.

COLLISION

Collision coverage pays the cost of repair or replacement to your vehicle following a crash.  Collision is optional coverage, meaning you can choose to not pay for this coverage and leave your vehicle unprotected.  Collision coverage is also no-fault coverage, so the policy will pay your car damage claims even if you did not cause the accident.  The advantage to using collision coverage in an accident caused by another driver is you deal only with your own insurance company, and you don’t have to cooperate with the at-fault driver’s insurance carrier.

If your vehicle is financed, the bank will require you to carry collision coverage.  Otherwise, the choice is yours.  The decision whether to carry collision coverage depends on whether you can afford to repair or replace your vehicle if an accident occurs that is partially your fault.

If your car is paid off and you have the title, you have to look at the value of your car, see what it’s worth today, and ask yourself whether you can replace that vehicle without a contribution from your car insurance policy.  Simply balance the value of your car against your savings balance.  If you can afford to replace your car, pass on collision coverage and put the premiums into savings.  If a crash occurs, you will have sufficient funds to replace/repair your vehicle.

If you live paycheck to paycheck and don’t have credit or savings to pay for repair or replacement of your vehicle, it is still wise to carry collision coverage, even on an older vehicle.  Even if you only stand to collect a few thousand dollars after a crash occurs, the discipline imposed by paying monthly into car insurance premiums ensures that you have some financial help if you ever have to fix or replace your vehicle.

RENTAL REIMBURSEMENT COVERAGE

Collision coverage does not pay for a rental car following an accident.  If you are not at fault, the other driver’s liability coverage will pay for a rental car while your vehicle is being fixed or replaced.  However, if you cause a crash, Collision coverage covers car repairs but not a rental car.  Thus, if you do not have an extra vehicle in your household and would need a car to drive while yours is being repaired, this inexpensive coverage is a very wise investment.   Most rental car policies provide a replacement vehicle for 30 days.

MEDICAL PAYMENTS COVERAGE

Some states provide Personal Injury Protection (PIP) coverage, which pays for crash-related medical bills and lost wages.  North Carolina does not have PIP, but instead offers Medical Payments coverage.  We strongly recommend that every driver carry Medical Payments (Medpay) coverage on their car insurance policy.  Medpay is optional coverage that is always very helpful for injury victims.

Mepay is available with limits options of $500, $1,000, $2,000, $5,000, $10,000, $25,000, $50,000 and $100,000.  The larger policies are quite rare.  Most drivers carry limits of either $1,000 or $2,000, and many drivers carry no Medpay at all.

We recommend always choosing at least $5,000 in Medpay coverage.  Medical Payments coverage is health insurance that pays for all crash-related medical bills after a collision.  The total amount of coverage is available for every person in the covered vehicle.  If a driver with $5000 in Medpay has two passengers, all three occupants have the right to present medical bills and each can collect up to $5,000.00 in benefits.

Medpay coverage has two advantages over traditional health insurance policies.  First, Medpay typically pays the full medical bill directly to the healthcare provider with no adjustments or write-offs.  If the victim has already paid the bill, Medpay will reimburse the victim.  Either way, the bill is promptly paid in full.

The second advantage is, unlike typical personal health insurance, the Medpay insurer does not have a right of reimbursement if you are an innocent victim with a right to pursue a personal injury claim against an at-fault driver.  Traditional health insurance typically does requiree you to pay them back from your personal injury case proceeds.  However, if you have Medpay that pays your medical bills, you can collect for the same medical bills through your personal injury claims against the at-fault driver.  With Medpay, you can collect twice for your medical bills.

Even if you have traditional health insurance coverage, you should still carry Medpay on your auto policy. Medpay is very inexpensive coverage and is always helpful for every injured crash victim.   We recommend coverage limits of at least $5,000.00, with $10K-$25K being a far better option.

UNINSURED MOTORIST COVERAGE

Uninsured Motorist (UM) pays you, your passengers and your family if any of you are ever injured in a hit & run accident or a collision caused by a driver who failed to purchase car insurance.  UM coverage covers the policyholder, all occupants of the insured vehicle and all family members who reside with the named insured.  UM coverage is currently mandatory in North Carolina with minimum limits of:

Uninsured Motorist Property Damage – $25,000.00

Uninsured Motorist Bodily Injury – $30,000.00 per-person/$60,000.00 per-accident

Higher coverage limits are optional for all NC auto policies.

In hit & run accidents, UM property damage coverage does not apply.  You therefore must have collision coverage to collect car damages benefits in a hit & run crash case.  There is Uninsured Motorist Bodily Injury (UMBI) coverage for all insured victims who are injured by a hit & run driver.  If the crash is caused by an identified driver who simply failed to carry car insurance, the damaged vehicle is covered by Uninsured Motorist Property Damage coverage with a reduced deductible of $100.00.

We recommend that all drivers carry at least $100,000.00 per-person and $300,000.00 per accident in UMBI.   This level of coverage would allow you collect up to $100K for your personal injury claims if you are injured by an uninsured driver or a hit & run driver.  If you can afford to, you should carry higher limits – $250K per-person and $500K per-accident.

UM coverage is also stackable in North Carolina.  If you are hit and injured by an uninsured driver, the UM coverage on the vehicle you were riding in is primary.  If your injury claims are worth more than the total coverage on the vehicle you were riding in, you can also collect UM benefits from your own personal auto policy AND you can also collect benefits from all other auto insurance policies for every resident relative – anyone who lived with you on the date of your accident who are related to you by blood or marriage.

UNDERINSURED MOTORIST COVERAGE

Underinsured Motorist (UIM) coverage pays benefits to collision victims who have injury claims that are worth more than the at-fault driver’s liability coverage.  We recommend that all drivers carry at least $100,000.00 per-person and $300,000.00 per-accident in UIM coverage.  If you endure serious injuries and the at-fault driver has only $30,000.00 per-person in bodily injury liability coverage, you would be able to collect $70,000.00 in additional coverage through your UIM policy.

UIM coverage is also stackable in North Carolina.  To determine the total amount of UIM coverage available after a crash, you add up the per-person limits on all applicable UIM policies, then subtract the amount of liability coverage available from the at-fault driver’s policy.  For example, consider a crash victim who is injured while driving a friend’s car, and the at-fault driver’s insurance company agrees to offer their bodily injury liability coverage limit of $30,000.   If the crash victim’s friend had $100,000 in UIM on the car involved in the crash, the crash victim has her own car insurance policy with $100,000 in UIM, and the crash victim lives with a parent who has their own auto policy with $50,000 in UIM, the total coverage available would be $250,000 – $30,000 paid first from the at-fault driver’s liability policy and then the three UIM policies owe the additional $220,000.

Whenever possible, you should to carry $250,000 per-person and $500,000 per-accident in UM & UIM coverage.  UM & UIM premiums are rather inexpensive, so for most drivers this level of coverage will still be affordable.  Since this coverage protects you, your family and your passengers in the event of injury, you should gladly pay the additional premiums to make sure you have adequate coverage and an opportunity to collect fair payment if you, your passengers or your family ever endure injuries in a car accident.