How Much Car Insurance You Should Have
Deciding how much car insurance you should carry is one of those practical but surprisingly personal financial choices. It’s a balance between protecting your assets and keeping your monthly budget manageable. Some people rely on the state minimums and never think about it again, while others carry extensive coverage because their home, investments, or future earnings give them something valuable to protect. This article will walk you through the factors that matter, show realistic numbers and scenarios, and explain how to pick coverages that make sense for your situation.
Insurance basics: what the main coverages mean
Before settling on dollar amounts, it’s important to understand the common parts of an auto policy. Liability coverage pays for damage and injuries you cause to others. Collision insurance pays for repairs to your vehicle after a crash, regardless of fault. Comprehensive covers non-collision losses such as theft, fire, or hitting an animal. Uninsured/underinsured motorist (UM/UIM) protects you if the other driver lacks enough insurance. Medical payments or personal injury protection (PIP) covers medical costs for you and passengers, depending on state rules. Finally, an umbrella policy sits above your auto liability and provides extra protection when liability limits are exceeded.
Each of these lines has limits and deductibles you choose. The right combination depends on your assets, income, vehicle value, risk tolerance, and where you live.
State minimums versus realistic protection
Every state sets minimum liability requirements, but those numbers are designed to be the legal floor, not necessarily what will protect you in a serious accident. If you carry only the state minimum and you’re at fault in a crash that causes substantial injury or property damage, those minimum limits can be exhausted quickly, leaving you personally responsible for the remainder. Many financial advisors recommend carrying limits well above state minimums, especially for drivers with significant assets or earning power.
The table below uses representative state minimums to show how low those legal minimums can be. It is a sample, and you should check your state’s exact requirements, which can change over time.
| State (sample) | Bodily Injury per person | Bodily Injury per accident | Property Damage |
|---|---|---|---|
| California | $15,000 | $30,000 | $5,000 |
| Texas | $30,000 | $60,000 | $25,000 |
| Florida | $10,000 | $20,000 | $10,000 |
| New York | $25,000 | $50,000 | $10,000 |
| Illinois | $25,000 | $50,000 | $20,000 |
These minimums can sound reasonable until you consider that a single serious crash can result in medical bills and vehicle and property costs in the tens or hundreds of thousands of dollars. A moderate-to-severe injury claim, surgery and rehabilitation, or multiple injured parties can quickly surpass even a $100,000 policy.
How to pick liability limits that make sense
A practical way to decide on liability limits is to look at your net worth and future earning potential. Liability insurance protects you from judgments and settlements that could otherwise tap into your bank accounts, investments, and earnings. A common rule of thumb is that liability coverage should at least protect your net worth and a few years of income. For many people, that means selecting higher limits than the state minimum.
Financial planners often recommend 100/300/100 as a reasonable baseline for many drivers. That means $100,000 per injured person, $300,000 per accident, and $100,000 for property damage. Drivers with more assets or higher income may want 250/500/100 or higher. If you own a home, rental properties, or have investments worth $500,000 or more, an umbrella policy that adds $1 million or more in coverage is often a cost-effective layer of protection.
“I tell clients that liability insurance is about protecting your life goals, not just your car. If you have a mortgage and retirement savings, increase your liability limits. In most cases the premium delta between 100/300 and 250/500 is relatively small, and the extra protection can be life-changing if you need it.”
— Angela Ramos, CFP, Independent Financial Planner
Here are practical limit tiers with realistic thinking behind each:
A modest tier: 50/100/25 or 100/300/50. This works for people with limited assets who need more than the state minimum but cannot justify the cost of higher limits. A standard tier: 100/300/100. This suits many families and homeowners with mid-level savings. An enhanced tier: 250/500/100 or 250/500/250 for professionals or business owners with considerable assets. A high-net-worth tier: $1 million umbrella on top of 250/500 underlying coverage, common for executives, physicians, and property owners.
What could go wrong: realistic accident cost scenarios
Understanding potential costs can help make the abstract numbers more concrete. The table below shows three realistic accident scenarios and how different liability limits would respond. These are illustrative numbers meant to reflect actual costs that can occur in the U.S.
| Accident Scenario | Expected Payouts (medical + property + legal) | How 100/300/100 performs | How 250/500/100 + $1M umbrella performs |
|---|---|---|---|
| Multi-vehicle T-bone, two passengers seriously injured | $420,000 medical + $40,000 property + $100,000 legal = $560,000 | Pays up to $300K. Claimant may obtain judgment for $260K against you personally (out of pocket or asset lien). | 250/500 covers up to $500K; umbrella covers the remaining $60K. You are protected fully. |
| Single-car collision injuring one pedestrian, long recovery | $150,000 medical + $15,000 property + $25,000 legal = $190,000 | 100/300 covers the full $190K. No exposure to you personally. | Also fully covered; minimal difference in outcome but umbrella provides extra peace of mind for larger incidents. |
| Hit-and-run with several injured, long-term disability for one | $800,000 medical + $60,000 property + $200,000 legal = $1,060,000 | 100/300 leaves about $760K exposure; claimant may pursue your assets or future wages. | 250/500 + $1M umbrella covers up to $1.25M. Claim covered without personal exposure. |
These scenarios show why the step up from state minimums to 100/300 or 250/500 is not just about meeting legal requirements but about avoiding personal financial disaster in the event of a severe accident.
Collision and comprehensive: choosing deductibles and coverage for your car
If you carry a loan or lease, lenders usually require collision and comprehensive. If you own your car outright, you can choose to drop collision and comprehensive if the car’s cash value is low relative to your deductible and premiums. The decision should be practical: if the annual premium plus deductible exceeds the car’s value, you may be better off self-insuring the vehicle.
Deductibles are a trade-off. A higher deductible reduces premiums but increases out-of-pocket cost if you file a claim. A typical deductible range is $250 to $2,500. A common choice is $500 or $1,000. If you have an emergency fund of $2,000 or more and drive carefully, a $1,000 deductible can meaningfully lower your premium without undue risk.
Real numbers: how deductibles affect premiums
Below is an example illustrating how changing collision/comprehensive deductibles might affect average annual premiums for a typical 40-year-old driver with a 2018 sedan. These numbers are illustrative and will vary by insurer, driving history, and location.
| Deductible | Annual collision & comp premium | Premium savings vs $250 deductible | Estimated out-of-pocket if you file a claim |
|---|---|---|---|
| $250 | $520 | Baseline | $250 |
| $500 | $460 | $60 saved | $500 |
| $1,000 | $385 | $135 saved | $1,000 |
| $2,500 | $300 | $220 saved | $2,500 |
Choosing a deductible is one of the clearest ways to adjust your premium. If you rarely file claims and have $1,000 available in an emergency fund, a $1,000 deductible often makes sense. That said, if you can’t afford the deductible in the months after an accident, a lower deductible might be right for your situation.
Uninsured and underinsured motorist coverage: often overlooked but vital
Around 10% to 13% of drivers nationally are uninsured, with higher rates in certain states. That number can be higher in states with more uninsured drivers or looser enforcement. If you are hit by an uninsured or underinsured driver and they can’t cover your medical costs, UM/UIM coverage steps in. This is especially important in states with higher uninsured rates or if you rely on your income to support a family.
“Uninsured motorist coverage is cheap relative to the protection it provides. I regularly see clients who skip it and end up in long negotiations after a hit-and-run or when the at-fault driver has minimal coverage. Make UM/UIM at least equal to your liability limits.”
— Marcus Lee, Senior Claims Attorney
Most advisors recommend buying UM/UIM coverage that matches your liability limits. If you carry 250/500 liability, consider matching UM/UIM to that level. If your state mandates specific UM options, follow those rules, but lean toward higher limits where possible.
Medical payments and PIP: short-term vs long-term coverage
Medical payments (MedPay) and personal injury protection (PIP) cover immediate medical expenses following an accident, regardless of fault. Some states require PIP and may limit your ability to sue for additional damages. If your health insurance has high deductibles or poor auto-accident coordination, purchasing MedPay or PIP can help cover emergency care and co-pays quickly.
Typical MedPay limits range from $1,000 to $10,000, with PIP sometimes offering $10,000 to $50,000 depending on the state. If you have robust health insurance with low out-of-pocket costs, you may choose lower MedPay amounts, but keep in mind that PIP has a different role and sometimes covers lost wages and other costs that health insurance does not.
Gap insurance: when your loan or lease matters
If you lease or finance a new car, gap insurance covers the difference between the car’s actual cash value and the amount you still owe. Vehicles depreciate quickly; in the first two years a car can lose 30% or more of its value. If your car is totaled and the payout from the insurer is less than what you owe, gap insurance prevents you from paying that difference out of pocket. For a typical loan where you put little or no down payment, gap insurance is often a smart buy for the first two to three years.
Umbrella policies: adding a cost-effective layer
An umbrella policy provides additional liability protection beyond your auto and home policies. For many people a $1 million umbrella costs between $150 and $300 per year if you have the required underlying coverage (often 250/500 on auto). Adding a second million might cost another $150 to $400 annually, depending on risk factors. Compared to the potential cost of a judgment, an umbrella policy is inexpensive protection for middle- and high-net-worth individuals.
“Umbrella insurance is the safety net you hope you’ll never need but will be grateful you had if you do. For many people a $1 million umbrella for $200 a year is a no-brainer, especially if you own property or have substantial retirement savings.”
— Diane Porter, Insurance Underwriting Specialist
How much will your premium actually be? Real-world examples
Insurance costs vary widely by age, location, driving record, vehicle type, credit score in some states, deductibles, and coverage selections. Below are sample annual premium ranges for a few typical driver profiles. These estimates combine liability, collision, comprehensive, UM/UIM, and MedPay when applicable, and assume a full-coverage policy with a $500 deductible for collision/comprehensive where shown.
| Driver Profile | Coverage example | Estimated annual premium |
|---|---|---|
| 30-year-old, single, good driving, suburban Ohio | 250/500/100, collision/comprehensive ($500 ded), UM/UIM $250/500 | $1,050–$1,450 |
| 45-year-old, married, homeowner, good driving, California metro | 100/300/100, collision/comprehensive ($500 ded), UM/UIM 100/300, $1M umbrella | $1,400–$2,100 (including umbrella $180–$260) |
| 22-year-old new driver, urban area, sports car | 100/300/50, collision/comprehensive ($1,000 ded), UM/UIM 100/300 | $3,200–$5,800 |
| 60-year-old retiree, good driving, rural area, paid-off sedan | 100/300/100, collision/comprehensive optional ($1,000 ded), UM/UIM 100/300 | $650–$1,000 |
These ranges reflect that premiums are individual. Two drivers living next door with identical cars and driving records can pay very different premiums due to credit-based insurance scores where permitted, or specific neighborhood claim history. The key is that meaningful protections like 250/500 liability and $1 million umbrella coverage are often affordable for many middle-income families.
Reducing your premium without giving up protection
You can lower your premium while keeping strong protection by adjusting several levers. Increasing your deductible can cut collision and comprehensive premiums. Maintaining a clean driving record and completing defensive driving courses can reduce rates over time. Bundling auto and homeowners insurance typically brings discounts. Some companies offer discounts for low annual mileage, hybrid or safety-equipped vehicles, and for paying the annual premium upfront instead of monthly.
Shopping every few years and comparing quotes across at least three insurers can produce significant savings. A policy review with your agent or an independent broker can also find gaps, duplicate coverages, or opportunities to raise limits in one area while lowering cost in another.
“People often focus only on price instead of value. Ask yourself what would happen to your savings, mortgages, and retirement if you were sued for $500,000. The small incremental premium for higher liability or an umbrella is often the best investment in financial peace of mind.”
— Dr. Kevin Armitage, Actuary and Risk Analyst
Choosing deductibles: a simple financial test
A practical test to choose a deductible is to look at your emergency fund and typical cash flow. If an unexpected $1,000 bill would be a hardship over the next month, a $1,000 deductible is likely too high for you. If paying $1,000 is manageable and you go several years without a claim, the premium savings could net you money. For collision and comprehensive, consider how often you file claims and how much you drive. Frequent small claims might be better handled by a lower deductible, while infrequent, larger incidents favor a higher deductible.
Common mistakes people make
One common mistake is relying solely on state minimums. Another is failing to keep UM/UIM coverage at levels similar to liability. Many people also forget to add an umbrella policy once they acquire sizeable assets. Some drivers choose very low deductibles thinking they will save money overall without calculating the cumulative premium cost over years. Finally, failing to update policies after major life changes—buying a house, starting a business, or moving—can leave you underinsured.
Case studies: how coverage choices affected real outcomes
Consider the following scenarios, each reflecting plausible outcomes and choices.
Case A: A teacher with a paid-off car and $50,000 in savings carries 25/50/25 limits. They are at fault in a multi-car crash that results in two people needing surgery. Medical bills and property damage total $450,000. Because their liability was only 25/50, they face a $400,000 judgment that could result in wage garnishment and liens. The small annual savings from low limits proved very costly.
Case B: A young family carries 100/300/100 with UM/UIM matching liability and a $1M umbrella. They are involved in a rear-end crash where multiple passengers are badly hurt and the at-fault driver has minimal insurance. The family’s insurance covers medical costs, property damage, and legal defense without tapping into their savings or home equity.
Case C: A tech executive buys collision and comprehensive on a leased car with a $1,000 deductible. After three years the car’s value is below the remaining lease payoff and a total loss occurs. With gap insurance, the executive pays nothing out of pocket on the loan balance and only the deductible, which the employer reimburses as part of a business-use policy. The gap coverage saved them thousands that would have otherwise been owed.
Questions to ask your agent
When you talk to an agent or broker, ask what they recommend for your net worth and the claims history in your area. Ask what the typical umbrella cost would be if you increased your liability limits, and whether your current home and auto policies meet the umbrella’s underlying requirement. Confirm how UM/UIM works in your state and whether MedPay or PIP is appropriate given your health insurance. Discuss discounts that may apply to your household and whether safe-driver or telematics programs could lower your cost.
“If you only leave with one action, make it increasing liability limits to at least 100/300 if you own a home or have retirement savings. The extra premium is usually small, and the protection is meaningful.”
— Priya Narang, Independent Insurance Agent
A practical checklist to set your coverage
Start by listing assets you want to protect: home equity, retirement balances, brokerage accounts, and any business ownership. Add a reasonable estimate of future earnings you’d want protected for several years. Next, decide on a liability level that comfortably exceeds that combined amount. Choose collision and comprehensive if you have a financed or leased vehicle, and pick a deductible that fits your emergency fund. Match UM/UIM to your liability limits where possible. Consider an umbrella policy if your combined assets and earning potential exceed $300,000 to $500,000. Finally, shop multiple quotes and review discounts you may have missed.
Final thoughts: tailoring coverage to your life
There is no single answer for how much car insurance you should have. For a young driver with limited assets, state minimums plus reasonable UM/UIM might suffice. For a family with a mortgage and savings, 100/300/100 is often a smart baseline. If you own substantial assets or have high earning power, stepping up to 250/500/100 and adding a $1 million umbrella is a relatively inexpensive way to avoid catastrophic exposure.
Insurance is about managing financial risk. The goal is not to buy the cheapest policy but to buy the most sensible protection for what you value. Small annual premium increases can prevent life-altering financial loss. Take the time to review your policy, discuss your net worth and risk tolerance with a qualified advisor, and update your coverage as your life changes.
Insurance choices are deeply personal but informed decisions are universal. Use these guidelines, the sample numbers, and the questions for your agent as a starting point. Protecting yourself and your family doesn’t have to be complicated—start with sensible liability limits, appropriate deductibles, and an umbrella if you have substantial assets. The peace of mind is worth the modest extra cost.
If you want help tailoring exact numbers to your net worth and location, consult a licensed insurance agent or financial planner who can model scenarios specific to your situation.
Source: