Feb 4, 2021 4 min read

While watching a recent Villanova basketball game, I was stuck by a commercial claiming the company would sell you only what you need.

So how do you know what car insurance you need?

First, remember all insurance is regulated by the state in which you live. If you reside in Pennsylvania, you are required by law to purchase liability insurance with limits of 15/30/5 and medical coverage of $5,000. So what does 15/30/5 mean?

The first number represents the amount of liability protection your insurance company will provide if you cause injury to one person in a car accident. The 15 is short for $15,000.

The second number represents the amount of liability protection your insurance company will provide if you cause injury to more than one person in a car accident. The 30 is short for $30,000.

The last number represents the amount of liability protection if you cause property damage to someone and is short for $5,000.

The $5,000 in medical coverage is for the members of your household and passengers in your vehicle if they do not have car insurance of their own. It is paid out first before another medical insurance will kick in.

So now you know what you need to legally drive your car. Is this the coverage you want?

If you are not worried what will happen to you or the people you injured, then the answer is yes. On the other hand, if you have assets that you want to keep or concerns about injuring other people, then different limits may be what you need.

The purpose of liability insurance is to protect your assets from being used to reimburse someone for damages you cause. Very few people do not understand the high cost of medical care.

With the law requiring individuals to carry only $5,000 in medical coverage, the additional bills can be the responsibility of the person causing the accident.

Now think of property damage coverage. The valuation analysts of Kelley Blue Book reported the estimated average transaction price for a light vehicle in 2020 was $37,000. Do you believe $5,000 will protect your assets when you hit that new Mercedes?

So if you own assets and want to protect them, you need liability limits that protect them. The first step is to identify your assets and give them a numerical value. Then, remember that for most of us, those assets will grow in value.

Also remember your earning potential is an asset and should be included in your calculations. When you have taken this step, your liability limits (what you need) should be more like $100,000/$300,000/$100,000.

Now let us look at the required medical coverage for you and your family. Medical insurance on car policies begins at $5,000 and can be increased to $100,000 under the medical coverage on a Pennsylvania car policy.

There is an optional coverage called coverage Q that begins after the first $100,000 in medical bills has been reached and will pay for any medical need up to $1 million for the life of the injured person.

So what do you need ? If you have health insurance, the basic $5,000 may be enough. If you do not have health insurance, you may want/need more coverage. Remember the Q coverage I mentioned? Well, not only does it cover medical bills, but also things like rehabilitation and home remodeling while you are recuperating.

These are things most health insurance plans don’t cover.

In one article I was able to explain only two of the coverages in a Pennsylvania auto policy.

The next time, I’ll deal with the other optional coverage you may need.

Bob Hollick is a State Farm Insurance agent based in Washington. His column appears every other Thursday in the Observer-Reporter.

To submit columns on financial planning, investing or business-related matters, email Rick Shrum at rshrum@observer-reporter.com.