Sarah carries only her state's minimum liability coverage (25/50/25). She causes an accident injuring one person, who incurs $80,000 in medical bills. How much does Sarah personally owe after her insurance pays out?
ANothing — her liability coverage pays all damages she causes to others
BNothing — her collision coverage fills any gap above the liability limit
C$55,000 — her per-person limit is $25,000, leaving $55,000 she must pay personally
D$30,000 — her per-accident limit is $50,000, leaving $30,000 uncovered
The 25/50/25 policy pays a maximum of $25,000 per injured person. With one victim and $80,000 in bills, insurance covers $25,000 and Sarah is personally liable for the remaining $55,000 — from wages, savings, or future earnings. State minimums are a compliance floor, not a financial protection guide. Option D incorrectly applies the per-accident limit ($50,000), which only matters when multiple people are injured.
Question 2 Multiple Choice
Marcus's car is stolen from a parking lot. He has state-minimum liability coverage and collision coverage but skipped comprehensive. What will his insurer pay for the stolen vehicle?
AThe vehicle's actual cash value — collision coverage includes theft
BNothing — theft is covered by liability coverage only if another driver caused it
CNothing — theft is a non-collision event covered by comprehensive, which he doesn't have
DHalf the vehicle's value, since he has partial coverage
Theft is a non-collision event covered by comprehensive, not collision. Collision pays when your car is damaged in a crash regardless of fault. Comprehensive covers theft, vandalism, floods, fire, hail, and animal strikes. Without it, Marcus's policy provides no reimbursement for the stolen vehicle. This illustrates why 'comprehensive' does not mean 'everything' — it refers specifically to non-collision losses.
Question 3 True / False
Uninsured motorist (UM) coverage primarily protects you when you cause an accident without having insurance yourself.
TTrue
FFalse
Answer: False
This is backwards. UM/UIM coverage protects YOU when the other driver — who is at fault — lacks adequate insurance. Your liability coverage only pays for damage you cause to others; it does nothing for your own injuries if an uninsured driver hits you. UM/UIM fills that gap by acting as if the at-fault driver had sufficient coverage when they don't. Given that roughly 1 in 8 U.S. drivers is uninsured, this coverage is among the highest-value additions to a policy.
Question 4 True / False
'Comprehensive' auto coverage protects your vehicle from most types of damage and loss.
TTrue
FFalse
Answer: False
Comprehensive covers non-collision events: theft, vandalism, hail, floods, fire, and animal strikes. It does not cover collision damage (that's collision coverage), mechanical breakdown, or normal wear and tear, and there are additional exclusions. The name is misleading — 'comprehensive' describes the breadth of non-collision events covered, not an absence of limits.
Question 5 Short Answer
Why do financial advisors recommend carrying liability limits well above your state's legal minimums, even though the minimums satisfy the law?
Think about your answer, then reveal below.
Model answer: State minimums are legal floors, not financial protection guides. A single emergency room visit can exceed typical per-person limits ($25,000), and a serious hospital stay easily exceeds per-accident limits ($50,000). When damages exceed your policy limits, you are personally liable for the difference — from savings, assets, or future wages. The premium savings from minimum coverage are small compared to the catastrophic personal financial exposure in a serious accident.
Insurance minimums are designed to ensure at-fault drivers have some ability to pay, not to make victims whole or protect the policyholder from ruin. Most advisors suggest limits of at least 100/300/100 for anyone with significant assets or income — several times higher than most states' minimums.