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Is record inflation leaving you underinsured in 2022?

Driver holding a coffee and a satchel getting into their car. From the attire, it would appear this person is a nurse or some other kind of aid worker.
Klaus Vedfelt/Getty Images
Driver holding a coffee and a satchel getting into their car. From the attire, it would appear this person is a nurse or some other kind of aid worker.
Klaus Vedfelt/Getty Images
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Inflation has soared to a 40-year-high, and like nearly everything else, auto insurance rates are increasing. Bankrate expects more insurance rate hikes as the year continues, with millions of dollars more in premium increases going into effect later this month. But as prices continue to skyrocket, you need to consider how rising costs affect more than just your budget. While your car insurance premiums increase, your car insurance coverage remains the same. And as medical and vehicle repair costs continue to rise, your coverage today may not go as far as it used to, potentially leaving you underinsured. Bankrate shows you how inflation affects car insurance, why rethinking your coverage is important and how increasing your coverage may affect your bill.

Inflation affects car insurance coverage

Depending on your car insurance coverage, your policy can pay for many things in an accident, such as damage to your vehicle, damage you cause to another driver’s vehicle and injuries. The problem is that inflation is driving up vehicle repairs and injury-related costs, such as medical bills. Inflation and increased accident frequency are causing insurance companies to raise policyholders’ car insurance rates to compensate for these higher and more frequent expenses. However, despite paying more for your policy, inflation is also lowering the level of financial protection your car insurance provides. Understanding this issue and your current car insurance coverage is key to deciding if you need more coverage. Below are the car insurance coverage types primarily affected by inflation.

Medical costs have increased

Consumer Price Index data shows that medical care costs rose 4.8 percent between June 2021 and June 2022. Because medical expenses cost more, your coverage limits won’t go as far. Since different car insurance coverage types pay for medical bills in an accident, you may be at risk being underinsured with your bodily injury liability, medical payments, personal injury protection, uninsured motorists bodily injury and underinsured motorists coverage.

For example, the average bodily injury liability payout in 2020 was $20,235 per accident, according to the Insurance Information Institute. If injury-related costs have increased 4.8 percent, the same accident could cost $21,206 in 2022. That said, drivers with lower coverage limits may find that inflation already makes their coverage insufficient. Increasing limits to keep pace with inflation could help you avoid high out-of-pocket costs.

Vehicle costs have increased

Inflation has also caused the cost of new vehicles to go up 11.4 percent and used vehicle costs to increase 7.1 percent since June 2021. Cars are getting more expensive, which means higher repair and replacement costs if you damage or total someone’s vehicle in an accident or if they total yours.

Just like with medical costs, car insurance policies have coverage types designed to pay for vehicle damage. These include property damage liability, comprehensive coverage, collision coverage and uninsured motorist property damage coverage (where available). Due to the increased cost of vehicles and parts, your policy’s coverage limits may be insufficient, especially if you are carrying lower liability limits. To account for increased expenses, if you were to be involved in an at-fault accident, it might be worth considering bumping up your coverage to minimize your risk of being underinsured.

Finding the right coverage in today’s economy

So, prices are increasing, and your car insurance isn’t giving you as much financial protection as it used to. What can you do about it? A solution exists: increase your coverage limits.

Paying a higher car insurance bill isn’t anyone’s idea of fun, especially right now. But your car insurance is integral to your overall financial health. Your coverage amount could mean the difference between financial discomfort and financial devastation.

We used data from Quadrant Information Services to illustrate that increasing your liability coverage generally doesn’t result in a huge premium increase. The rates in the table below are for full coverage — meaning comprehensive and collision are included — but varying liability limits. Although more coverage generally means paying more, it might be worth it to better protect your financial health. The premium increase for higher limits may not be too significant. For example, going from state minimum liability limits to 50/100/50 coverage is a 5 percent increase, or $7 a month.

Liability coverage limits Average annual premium for full coverage Average monthly premium for full coverage
Minimum liability limits $1,616 $135
50/100/50 $1,703 $142
100/300/50 $1,771 $148
250/500/100 $1,870 $156

Will I be over-insured if inflation goes down?

The answer to this is a bit tricky.

First, there is such a thing as over-insuring yourself. However, unless you increase your limits significantly, you likely won’t be over-insured if the economy starts to level back out. Higher limits provide more financial protection, so it may be a good thing to keep the higher limits.

If you feel that lower limits would meet your needs in the future, you can adjust your policy back down. Consider talking in detail with your insurance agent about what coverage you need. The goal is not to over-insure yourself but to make sure you are financially protected with sufficient coverage based on today’s costs.

Saving on car insurance costs

Auto insurance costs are rising, and increasing your limits will likely nudge your bill even higher. However, there may be ways to offset some costs and save on your car insurance policy:

  • Shop around: Getting car insurance quotes from different companies allows you to compare rates, coverage offerings, discounts and third-party scores to find the cheapest car insurance for your needs.
  • Utilize discounts: Most companies offer car insurance discounts to help you control your premium. Some common and impactful discounts are multi-policy, multi-car, safe driver and paperless.
  • Try a telematics device: Telematics discounts are relatively common and can help you earn a personalized discount. These programs track your driving habits via a mobile app or vehicle plug-in device and could reward you with savings if you drive safely.
  • Avoid accidents and tickets: Obey posted signs, practice defensive driving skills and stay safe on the roads. At-fault accidents and ticket convictions generally increase your car insurance premium.

The bottom line

Inflation is soaring to record highs and doesn’t seem to be slowing down any time soon. Higher medical bills and vehicle repair costs mean that your insurance coverage might be insufficient to properly protect your finances in an inflationary environment. While premium increases continue due to inflation and increased accidents, it may be worth considering to increase your coverage limits. After all, it can be reassuring to know that you’re financially protected by reducing your risk of out-of-pocket expenses in an accident. While the goal is not to over-insure yourself and inflate your premiums unnecessarily, the right coverage is crucial and can offer you the peace of mind you need every time you’re behind the wheel.

Written by
Cate Deventer
Insurance Writer & Editor
Cate Deventer is a writer, editor and insurance professional with over a decade of experience in the insurance industry as a licensed insurance agent.
Edited by
Managing Editor