How Much Car Insurance Coverage You Should Carry
Choosing the right car insurance coverage is one of those decisions most people procrastinate until it feels urgent. Yet the difference between carrying state minimums and carrying limits that truly protect you can be the difference between a manageable claim and losing tens or hundreds of thousands of dollars. This article walks through the types of coverage, realistic numbers to consider, how to match coverage to your personal situation, and expert perspectives to help you decide what limits make sense.
Why coverage limits matter more than premiums
It is tempting to shop for the cheapest premium, but the true purpose of insurance is to protect your finances in the event of a loss. A low premium that comes with minimal liability limits might feel like a savings now, but if you are legally responsible for an accident that causes significant injuries or property damage, state minimums often do not come close to covering the real costs.
To put it in perspective, a single catastrophic accident with multiple serious injuries can generate medical bills and liability claims easily exceeding $500,000 to $1,000,000. If you carry only a 15/30/5 policy (meaning $15,000 per person bodily injury, $30,000 per accident bodily injury, $5,000 property damage), you could be financially responsible for the gap. That is why many financial advisors recommend aligning insurance limits with your net worth and future earnings potential rather than focusing exclusively on the premium.
Understanding the most important types of coverage
Before setting limits, you should understand what each major coverage does. Liability coverage pays for the other party’s injuries and property damage when you are at fault. Collision and comprehensive cover damage to your vehicle, with collision covering accidents with other vehicles or objects and comprehensive covering theft, vandalism, hail, or hitting an animal. Uninsured and underinsured motorist coverage protects you if the at-fault driver has insufficient or no insurance. Medical payments and Personal Injury Protection (PIP) cover your medical costs regardless of fault in some states.
Each of these coverages comes with its own limits and deductibles, and the right combination depends on the value of your assets, the value of your vehicle, and the driving environment where you live. For many people, liability limits are the most critical because they protect personal assets in lawsuits.
State minimums vs. recommended coverage
Every state sets minimum liability requirements for drivers, but those limits vary dramatically and are often far below the level needed to protect most people. The table below shows selected state minimums to illustrate how inconsistent and often insufficient minimums can be.
| State | Minimum Liability Limits (Bodily Injury per person / per accident) | Minimum Property Damage | Typical Annual Premium (state average) |
|---|---|---|---|
| California | $15,000 / $30,000 | $5,000 | $1,050 |
| Texas | $30,000 / $60,000 | $25,000 | $1,350 |
| Florida | $10,000 / $20,000 | $10,000 | $2,200 |
| New York | $25,000 / $50,000 | $10,000 | $1,400 |
| Illinois | $25,000 / $50,000 | $20,000 | $1,000 |
| Pennsylvania | $15,000 / $30,000 | $5,000 | $1,150 |
The table above demonstrates that in several large states the minimums are only $15,000 to $30,000 for bodily injury or even as low as $10,000 in some areas. If you are sued for an accident that causes $200,000 in damages, those limits leave a large uninsured gap.
How much liability coverage should you carry?
Liability coverage is usually expressed as three numbers such as 100/300/100. The first number is the maximum amount the insurer will pay per injured person, the second is the maximum per accident, and the third is the maximum for property damage. A 100/300/100 policy limits payouts to $100,000 per person injured, $300,000 total per accident, and $100,000 for property damage.
For most drivers with significant assets—home equity, retirement accounts, investments, or future earning potential—carrying at least 100/300/100 is a reasonable baseline. For people with more assets or higher income, limits of 250/500/250 or higher are common. The extra cost to step up from 100/300/100 to 250/500/250 is often modest compared to the risk reduction.
To make this concrete, consider three example drivers and the coverage that might suit them.
First, a 28-year-old renter with modest savings of $8,000 and no dependents who drives infrequently and owns a 2012 sedan valued around $6,000 might reasonably carry 50/100/50 liability with collision and comprehensive and a $1,000 deductible on physical damage. The premium might be around $900–$1,200 per year depending on state and driving record.
Second, a 45-year-old married homeowner with $350,000 in home equity, $200,000 in retirement savings, and a professional income of $140,000 is at higher risk if sued. For this driver, at least 250/500/250 liability plus uninsured motorist coverage and an umbrella policy are sensible. The incremental premium to raise liability from 100/300/100 to 250/500/250 for a good driver is often $400–$1,200 per year depending on state and carrier. This cost can be small compared to the exposure of losing a house in a liability judgment.
Third, a small-business owner who leases their home and has business assets and exposure from driving for work may need $1,000,000 in umbrella coverage beyond a 500/500/500 underlying policy. Umbrella policies cost surprisingly little for the protection they offer: a $1 million umbrella policy often ranges from $150 to $350 per year for a low-risk driver and $400 to $700 for higher-risk profiles.
Estimated premium differences by coverage level
To give ballpark revenue numbers that reflect how premiums vary with coverage limits, the table below shows estimated annual premiums for a typical 40-year-old driver with a clean 5-year driving record, a mid-value vehicle (2018 sedan), and living in a medium-cost area. These estimates are illustrative but rooted in typical market rates.
| Coverage | Liability Limits | Collision/Comp Deductible | Estimated Annual Premium |
|---|---|---|---|
| Basic | 50/100/50 | $1,000 | $900 |
| Recommended for moderate assets | 100/300/100 | $500 | $1,300 |
| High protection | 250/500/250 | $500 | $2,200 |
| Maximum with umbrella | 500/500/500 + $1M umbrella | $250 | $3,500 (including umbrella cost) |
Keep in mind these estimates are illustrative. Location, credit score, driving history, age, sex, vehicle type, mileage, and carrier all affect premiums. Still, the incremental cost to move from state minimums to a responsible liability limit is often affordable, particularly relative to the financial risk being reduced.
Uninsured and underinsured motorist coverage: why it matters
Approximately 8% to 13% of drivers across the United States operate without insurance; in some states that figure is higher. If you are involved in an accident with one of these drivers, uninsured motorist (UM) coverage becomes crucial. Underinsured motorist (UIM) coverage protects you when the at-fault driver carries some insurance but not enough to cover your losses.
For instance, if a driver with a 25/50/25 policy hits you and you have $120,000 in medical bills, their policy would cover only $50,000 maximum for bodily injury. If you carry UIM with limits of $250,000, your carrier would step in to cover the $70,000 gap (subject to policy terms and offsets). Given the rising costs of medical care and rehabilitation, UM and UIM limits should match or exceed your liability limits whenever possible.
“Many clients are surprised to learn that uninsured motorist claims can be the most painful part of an accident because they often come after the adrenaline has settled and the real bills arrive. Make sure your UM/UIM limits are as high as your liability limits,” says Miguel Alvarez, a licensed insurance broker with 16 years of experience in major metropolitan markets.
Medical payments and Personal Injury Protection (PIP)
Medical payments (MedPay) coverage pays for medical expenses for you and your passengers regardless of who is at fault, usually without regard to liability. PIP, required in some states, can cover medical expenses, lost wages, and other costs. These coverages are particularly valuable for drivers without strong health insurance or who face high co-pays and deductibles.
A typical MedPay limit might be $5,000 to $25,000. For many drivers who already have robust health insurance, large amounts of MedPay provide little extra benefit. However, for uninsured drivers or those with significant out-of-pocket health costs, a $10,000 MedPay policy can make a meaningful difference. PIP limits vary by state and can run $10,000 to $50,000 or more depending on local law.
Collision and comprehensive: deductibles and replacement decisions
Collision and comprehensive coverage protect your vehicle. Collision helps repair or replace your car if you hit another vehicle or object, while comprehensive covers theft, vandalism, fire, flooding, or hitting an animal. These coverages are optional unless your vehicle is financed or leased; lenders typically require them.
Choosing a deductible requires balancing premium savings against out-of-pocket risk. A $1,000 deductible usually reduces your collision and comprehensive premium substantially relative to a $250 deductible. If your vehicle’s market value is low—say under $6,000—you might decide to drop collision coverage entirely because the annual premium could exceed the expected loss over time.
For example, if collision adds $350 per year to your premium and your car is worth $5,000, after five years you have paid $1,750 in premium for coverage that might only pay out $2,000 or less in a total-loss scenario. Conversely, for a $30,000 car, collision is often worth maintaining because repair or replacement costs are significant.
Umbrella insurance: leverage and affordability
Umbrella insurance provides liability protection above the limits of your auto and home policies. For many people, a $1 million umbrella policy is a cost-effective way to protect assets. As an example, the average cost for a $1 million umbrella policy ranges from $150 to $350 per year for low-risk individuals and $400 to $700 for those with higher exposure or claims history. Higher limits such as $2 million or $5 million increase premiums but typically remain affordable relative to the protection.
“If you have more than $200,000 in net worth or expect future earnings that could be garnished, an umbrella policy is one of the simplest and least expensive ways to avoid catastrophic exposure,” explains Dr. Emily Chen, an actuary who has modeled liability distributions for personal lines insurers for over a decade.
Umbrella policies require certain underlying limits on your auto and home insurance (for example, 250/500 or 300/600). When evaluating the need for umbrella coverage, include potential legal costs, the possibility of non-economic damages (pain and suffering), and the easiness with which claims can exceed basic policy limits.
Real-world examples: how coverage choices play out
Example 1: A multi-car accident causes four people to have moderate-to-serious injuries totaling $420,000 in medical and rehabilitation bills. The at-fault driver carries minimum limits of 30/60/25. Their policy pays $60,000 maximum for injury to all people combined, leaving $360,000 unpaid. The at-fault driver, if sued, could lose a home and future wages in a judgment. If the driver had 250/500/250 liability, the insurer would cover the full $420,000, preventing the personal financial disaster.
Example 2: A hit-and-run leaves a passenger with $85,000 in hospital bills. The vehicle owner has uninsured motorist coverage of $50,000 and MedPay of $5,000. Their health insurance steps in to cover much of the rest, but co-pays and uncovered rehabilitation costs total $15,000 out-of-pocket. If the owner had UIM of $250,000, the gap would have been covered and out-of-pocket costs minimized.
Example 3: A tree falls in a windstorm and totals a 2016 SUV valued at $22,000. The owner had comprehensive coverage with a $1,000 deductible. After the deductible, the insurer pays approximately $21,000 and the owner can replace the vehicle. If the owner had dropped comprehensive to save $300 per year, they would have absorbed the full loss.
“The right mix of coverages is rarely the cheapest plan. It’s the plan that fits your risk profile. Think of insurance like a protective wall: you want it high enough to block the worst outcomes,” says Sarah Thompson, a certified financial planner who helps families integrate insurance into their financial plans.
How to calculate appropriate limits for your situation
Start by adding up your assets that could be targeted in a judgment: home equity, non-retirement investments, and cash reserves. Your retirement accounts often have more protection from creditors, but laws vary. Then add a conservative estimate of future income that could be subject to garnishment for many years. For many households this means protecting $300,000 to $1 million or more. Liability limits should at minimum cover that figure.
Next, consider your driving environment. If you live in a dense urban area with heavy traffic, accident frequency and claim costs tend to be higher, which suggests higher uninsured/underinsured motorist limits and stronger liability protection. If you commute long distances, your exposure increases. If you park on the street in a high-theft neighborhood, comprehensive coverage remains important.
Finally, evaluate your comfort with risk. Some people can tolerate a greater chance of a large out-of-pocket loss and prefer lower premiums. Others prioritize peace of mind and want to transfer as much risk as reasonably possible to insurers. Both approaches are valid, but make the choice intentionally rather than assuming minimums are adequate.
Practical steps to choose and maintain the right coverage
First, inventory your assets and future income. Know how much would be at risk in a worst-case lawsuit. Second, review your current policies and match your liability and UM/UIM limits to the amount you want protected. Third, get quotes from multiple carriers and use the incremental premium numbers to evaluate how much protection each step up provides. For example, if $60 to $100 per month buys you an increase from 100/300/100 to 250/500/250, that might be a straightforward decision.
Fourth, consider an umbrella policy if your net worth or potential exposure exceeds your primary policy limits. Fifth, document and update. Major life changes—buying a house, inheriting money, having children, starting a business—should prompt an insurance review. Lastly, maintain good driving habits and shop periodically; discounts for bundling auto with home, paying annually, and being claims-free can lower your cost of carrying more protection.
“Insurance is dynamic. Periodically reassess your coverage after major financial events. What made sense five years ago may leave you exposed today,” recommends Priya Patel, a financial planner who specializes in risk management strategies for families and professionals.
Common mistakes people make with car insurance
One common mistake is assuming the state minimum will be enough. Minimums are designed to set a legal baseline, not to provide comprehensive financial protection. Another error is dropping UM/UIM coverage to save a few dollars; given that many accidents involve uninsured or underinsured drivers, this saving can be misleading. People also sometimes fail to update their policy after acquiring assets worth protecting or after adding teenage drivers to the household.
People frequently underestimate the total cost of an accident. Beyond medical bills and repair costs, legal fees, lost wages, and long-term care can add up. Underestimating these costs leads to insufficient coverage. Finally, not understanding deductibles on collision and comprehensive can produce unpleasant surprises: a low deductible raises your premiums, while a high deductible might leave you unable to repair or replace a vehicle after a loss.
How insurers calculate your rates
Carriers evaluate risk by looking at driving record, claims history, age, gender, marital status, credit (in most states), vehicle type, annual mileage, where you park, and where you live. A speeding ticket or at-fault accident can raise premiums substantially. Credit-based insurance scores, where allowed, can also change rates noticeably. Insurers price different coverage levels based on actuarial models that predict the likelihood and cost of claims. Adding higher liability limits, comprehensive coverage, or lowering deductibles changes the insurer’s potential exposure and thus affects premium.
That said, shopping around produces very different prices for similar coverage. Two drivers with the same profile may see quotes that vary by hundreds of dollars per year. That variation is why getting multiple quotes and negotiating is important, especially when changing coverage levels or adding umbrella protection.
When to drop collision or comprehensive
Dropping collision or comprehensive can make sense when the annual premium multiplied by an expected ownership horizon exceeds the likely recovery value of the car. If your car is older and worth $4,000 and collision adds $500/year to your premium, you may choose to self-insure the value by dropping collision and saving the premium. If you still owe on a loan or lease, the lender will require both collision and comprehensive. For leased or financed vehicles, discuss gap insurance, which covers the difference between the loan balance and the vehicle’s actual cash value in a total loss.
How to talk to an agent about limits
When you contact an agent, be prepared with a summary of your assets, debts, driving habits, and vehicles. Ask specific questions such as how much your premium increases when going from 100/300/100 to 250/500/250, what discounts are available, and whether the carrier requires specific underlying limits for umbrella coverage. Ask about how claims are handled and whether your state has pain-and-suffering caps or special rules that affect liability exposure.
Don’t accept the first answer. Ask the agent to show dollar figures and explain trade-offs. If the agent recommends the minimums without discussing your overall finances, consider a second opinion from an independent broker who can compare multiple carriers.
Final recommendations
For most people with moderate assets, a reasonable default is to carry at least 100/300/100 liability, full UM/UIM limits that match your liability limits, comprehensive and collision if your vehicle is worth more than a few thousand dollars, and a deductible you can afford—usually $500 or $1,000. For higher-net-worth individuals, consider carrying 250/500/250 or higher liability limits and adding a $1 million umbrella policy. For people with minimal assets who own an older car outright and can absorb a total-loss replacement, a 50/100/50 liability may be defensible, but only after intentional consideration of the risks.
Insurance is one of the few financial inputs where you buy certainty against extreme but plausible outcomes. Choosing limits shouldn’t be an emotional snap decision. It should be a deliberately selected balance between protecting what you value and paying for that protection in a way that fits your budget.
“Think about insurance as a component of your financial safety net. If losing your home or future earnings would change your life, invest the modest amount required to protect them,” says James O’Neil, an attorney specializing in auto accident litigation who has seen the consequences of inadequate insurance in dozens of cases.
Checklist to act on today
Start by reviewing your current declarations page to confirm your liability, UM/UIM, collision, and comprehensive limits and deductibles. Add up your assets—home equity, investments, and cash—that could be targeted in a lawsuit. Request quotes for at least two higher liability limit options so you know the incremental cost for increased protection. Finally, consider an umbrella policy if your net worth is $200,000 or higher or if you have high income or public visibility that could increase the chance of a lawsuit. Periodically review your coverages after any major financial change.
Closing thought
There is no single “right” policy for every driver, but there are clear principles to apply. Protect what matters most to you, align coverage to your assets and risk tolerance, and recognize that a modest increase in premium can materially reduce the chance of catastrophic financial loss. With a few minutes of planning and a couple of quotes, you can move from vulnerable to secure.
Source: