Is Inflation Leaving You Underinsured?

Beyond leading to increased prices, inflation also impacts purchasing power — that goes for both how far your dollar goes at the grocery store, and how far an insurance company’s dollar goes when covering claims. As a result, you may be paying more for your car insurance, but your coverage may actually be worse.

For example, let’s say you’ve had the same coverage limits — including $25,000 in property damage coverage — for many years. That $25,000 payout will not cover as many repairs now as it would have five years ago.

According to the U.S. Bureau of Labor Statistics, the cost of auto maintenance and repairs has increased by 5.8 percent just between October 2023 and October 2024,² caused in part due to higher parts and labor costs as well as a shortage of mechanics.³ If you look at the time period between March 2020 and October 2024, the increase is a whopping 37 percent.

Let’s say you caused an accident in March 2020 with $25,000 worth of property damage to the other driver. Those repairs would have been fully covered by your insurance. However, that same damage could cost more than $34,000 to repair now, leaving you on the hook for the extra $9,000.

Another side effect of car insurance premiums being driven up by inflation has been an increase in the number of uninsured drivers — up from 11 percent in 2019 to 14 percent in 2022.⁵ While that may seem like a minor increase, it translates to several million more drivers across the U.S. who are driving without insurance.

More uninsured drivers means there is a higher risk that a driver you get into an accident with will not have insurance coverage. If you don’t have uninsured motorist coverage, you may have a very hard time recouping any repair or medical expenses if the other driver was at fault. While this may not technically qualify as being underinsured, it’s something to keep in mind if you want to make sure you’re covered for most eventualities.

In general, drivers with only the state minimum liability coverage are most likely to be underinsured as a result of inflation. According to National Association of Insurance Commissioners (NAIC) data analyzed by the Insurance Information Institute, the average auto liability claim for bodily injury in 2022 was $26,501.⁶

Considering that the minimum coverage for bodily injury liability in many states is $25,000 per person, an average claim would leave a driver with minimum coverage underinsured if the expenses were going to one person (per accident limits are higher).

While some states, such as Virginia and North Carolina, are updating their liability limit minimums in 2025, others have not updated their limits in decades. For example, Pennsylvania last updated its minimum limits in the 1970s.

Additionally, those living in states with a high percentage of uninsured drivers are at more risk of being in an accident with one, and should strongly consider adding uninsured motorist coverage to their policy. The top three states with the highest rates of uninsured drivers — excluding Washington, D.C., which is No. 1 — are New Mexico, Mississippi and Tennessee.⁵

Insurance Claims by Vehicle Type

The type of car you drive can also affect how likely you are to be underinsured, as certain vehicles are more likely to incur insurance losses based on historical data. The Dodge Charger and its variants tends to incur more losses for both bodily injury and property damage.

Below are the vehicles with the highest and lowest bodily injury losses from 2020-2022.⁷

And here are the vehicles with the highest and lowest property damage losses during the same time period:

Finally, here are the bodily injury and property damage losses for some of the most popular vehicles in the U.S.:

The risk of an insurance loss is impacted by various factors beyond vehicle type, so driving a car with lower insurance losses is not necessarily a reason to get less coverage. That said, drivers of cars with high historical losses (Dodge Charger, Ram 1500, Kia Rio, etc.) in particular should consider higher liability limits.

The amount of car insurance coverage you need depends on various factors, including how often you drive, what type of car you have and more. If you’re unsure, speak with a licensed insurance agent so you can make sure you get the coverage and limits you need.

If your main concern is being underinsured, we recommend opting for full coverage with 100/300/100 liability limits to cover your bases. If you want even more financial protection and can afford it, you can look into getting even higher limits.

Inflation has majorly impacted the U.S. economy over the past few years, and drivers in particular are feeling the effects as the cost of auto insurance has increased. However, inflation also impacts car insurance in a less obvious, indirect way by lowering the purchasing power of claims payouts. Given rising medical and auto repair costs, low coverage limits may not be enough to cover accident-related expenses.

To make sure you’re not underinsured, opt for more than state-mandated minimum coverage and consider adding uninsured motorist coverage to your policy for added peace of mind.