In most states, a minimum level of auto insurance coverage has been set for drivers. The legislature is responsible for determining how much coverage auto insurance is required by law and what type of protection drivers must have in place.
Third party liability coverage is required in tort and no-fault auto insurance states. In a tort state, people who have been injured in a motor vehicle accident have the right to sue to collect damages for medical bills and rehabilitation expenses. They may also be entitled to compensation for economic loss stemming from the accident.
In a no-fault state, people who have been injured in an accident make their claims for compensation for injuries to their own insurance provider. The policyholder would have purchased a Personal Injury Protection (PIP) policy to provide coverage for this type of expense. The state legislature would have determined a minimum level of coverage for drivers to have in place.
Under both systems, auto insurance buyers can purchase a policy with a higher limit than the minimum required by law. Ideally, a consumer will purchase as much coverage as he or she can afford. The right level of protection will vary, depending on the consumer and the number of assets that he or she has to protect.
Some state legislatures will revisit the issue of minimum levels of liability coverage and increase the mandatory limit over time. The goal in this instance is to ensure that drivers are adequately protected if they are involved in an at-fault accident.