Tennessee Auto Insurance Basics

The Tennessee Financial Responsibility Law was enacted in 1977 and covers the minimum auto insurance required in Tennessee. Basically it requires minimum liability limits of $25,000 per person, $50,000 for 2 or more persons and $15,000 for property damage. This is found in Section 55-12-102 . In my opinion those limits are horribly outdated and low. However, before I start a rant, let me explain the basic elements of an auto insurance policy and how it works.

"Liability" insurance is required by law to operate a motor vehicle on the public roads in Tennessee. However, the basic policy also often contains coverages for property damage, uninsured/under insured motorist, comprehensive, collision, and medical payments. What does insurance mean and what do these terms mean?

"Insurance" is where a company "the Insurance Company" agrees for a fee "the premium" to reimburse you "the insured" for a covered loss or peril. The maximum amount the insurance company agrees to pay is called a "limit." The "insurance policy" is a contract between you the insured and it, the Insurance company. The insurance company agrees to reimburse you for the loss up to the policy limits.

The liability portion of your policy is purchased so that if a car wreck is your fault that the injured party will be paid by the insurance company for their injuries up to the limits of the policy. Without insurance you personally are responsible for these damages. The injured party can take your home, garnish your wages, and attach all your property. Not a pretty picture. Thus, you purchase the liability policy to protect yourself, your family, and your assets.

The $25,000 minimum limit for personal injury is just for those injuries you can recover if you are hurt. (I will make a separate bog post on that subject later.) The "property"damage limits is for damage to property such as the car, fence, guard rail. Guard rails are expensive and the cities or state will come after you. Several years ago my teenage son lost control and hit a guard rail in Brentwood. It only damaged about 10 feet of the rail. The bill? $3,500. I was glad I had property damage insurance on that car. Property damage insurance is required in Tennessee.

Now for the non required coverages. In my opinion the most important coverage of all is uninsured or under insured motorist coverage. That coverage makes your insurance company pay for the damages and personal injuries you receive when the negligent or responsible party has no insurance. The definition of uninsured vehicle by section 56-7-1202 of the Tennessee Code is

(a)(1) For the purpose of uninsured motor vehicle coverage, “uninsured motor vehicle” means a motor vehicle whose ownership, maintenance, or use has resulted in the bodily injury, death, or damage to property of an insured, and for which the sum of the limits of liability available to the insured under all valid and collectible insurance policies, bonds, and securities applicable to the bodily injury, death, or damage to property is less than the applicable limits of uninsured motorist coverage provided to the insured under the policy against which the claim is made; and

In Tennessee you can only buy limits equal to your liability limits. Thus, if you only buy $25,000 in liability insurance you can only purchase $25,000 in uninsured coverage. Why short your self to save a few bucks? Every year I have clients who do not receive the damages they are due under the law because they failed to purchase enough uninsured or under insured coverage. Under insured motorist coverage applies when the damages of the injured person exceed the liability insurance for the negligent party. For example. The responsible party has $25,000 in coverage. You have read this blog and have $100,000 in under insured coverage. A wreck occurs through no fault of yours and you are entitle to recover $75,000. The responsible party pays $25,000 and YOUR insurance company pays the next $50,000 so you get the full $75,000.

Comprehensive coverage is for items like broken glass, flood damage, or vandalism. Its pays basically to make repairs to your car.

Collision coverage is for property damage to your car if the accident was your fault or the responsible party had no property damage coverage. If your vehicle is financed the bank will require you to have this coverage. It will only cover the lesser of the cost of repair or the actual cash value of the car.

Medical payments is for the medical bills of the persons who are hurt in your car regardless of fault. It is dirt cheap but can help big time. (I pay about $50 year for $1 million in coverage!!!) Trust me the insurance company for the negligent party is not going to pay your medical bills until the end. They do not want you to seek medical treatment. Then they argue to the jury you could not have been hurt because you did not go to the doctor. You don’t get to explain "I didn’t have the money to go to the doctor, my emergency room bill was $3,000, I was out of work 2 weeks due to the wreck. I didn’t have health insurance." More in detail on med pay insurance in another blog.

I hope the above helps. It probably raises more questions than it answers. Thats OK, feel free to e-mail me or call and I will try to help.