The amount you need depends on your assets, your state's minimum, and what you can afford to lose

There is no single right answer to how much car insurance you need—it depends on what you own, what your state requires, and what would hurt you financially if something went wrong. A person with a paid-off car and modest savings needs different coverage than someone with a mortgage, a newer vehicle, and dependents. The goal is to have enough coverage so that a single accident doesn't wipe out your savings or force you into debt.

Your state sets a legal floor—the minimum liability coverage you must carry to drive legally. But that minimum is almost always too low to protect you if you cause a serious accident. A liability claim can easily exceed $100,000 if someone is badly injured or killed. If your coverage stops at your state's minimum and the judgment is higher, the injured person can pursue your wages, bank accounts, and assets to collect the difference.

Key Takeaways

  • Your state's minimum liability coverage is a legal requirement but usually leaves you personally responsible for anything above that amount.
  • If you have a mortgage, a lender will require you to carry collision and comprehensive coverage on the financed vehicle.
  • The higher your assets (savings, home equity, retirement accounts), the higher your liability limits should be to protect them.
  • Uninsured and underinsured motorist coverage protects you when the other driver cannot or will not pay for damage they caused.
  • Medical payments coverage and uninsured motorist bodily injury are different—one covers you and your passengers regardless of fault, the other only when the other driver is uninsured.

What your state requires as a minimum

Every state except New Hampshire requires you to carry liability insurance. The minimum varies by state and is expressed as three numbers—for example, 25/50/25. The first number is the limit per person for bodily injury, the second is the total limit per accident for bodily injury, and the third is the limit for property damage.

These minimums are low. In many states, the bodily injury minimum is $25,000 per person and $50,000 per accident. If you hit someone and cause $80,000 in medical bills, your insurance pays $50,000 and you owe the remaining $30,000 out of pocket. The injured person's lawyer will pursue your bank account, garnish your wages, and place a lien on your home to collect it.

Check your state's specific minimums on your state's insurance commissioner website or your insurance documents. You must carry at least that much to register your vehicle, but carrying only the minimum is a financial risk if you have any assets to protect.

How much liability coverage you should carry

A practical rule is to carry liability limits equal to your net worth—everything you own minus what you owe. If you have $200,000 in home equity, $50,000 in savings, and a retirement account, you have roughly $250,000 in assets a judgment could reach. You should carry at least $250,000 in liability coverage.

Most people buy liability in increments of $100,000. Common limits are 100/300/100 (meaning $100,000 per person, $300,000 per accident for bodily injury, and $100,000 for property damage) or 250/500/100. If your assets are modest—under $50,000—your state's minimum may be acceptable, though $50,000 or $100,000 per person is still safer. If your assets are substantial or you have dependents who rely on your income, consider $250,000 or $500,000 per person.

The cost difference between $100,000 and $300,000 in liability coverage is usually $10 to $20 per six-month policy. The cost difference between $300,000 and $500,000 is smaller still. For most people, buying higher limits is worth the small premium increase.

Collision and comprehensive coverage if you have a loan or lease

If you financed your car or leased it, your lender or leasing company requires you to carry collision coverage (which pays for damage to your car from an accident) and comprehensive coverage (which pays for theft, weather, vandalism, and other non-collision events). These are not optional—they are a condition of the loan or lease.

If you own your car outright, collision and comprehensive are optional. Whether you should carry them depends on the car's value and your ability to replace it. If your car is worth $3,000 and you have $10,000 in savings, paying $500 per year in collision premiums makes sense—you cannot afford to replace the car if it is totaled. If your car is worth $1,500 and you have $50,000 in savings, skipping collision and paying out of pocket if something happens may be the cheaper choice over time.

Comprehensive is usually cheaper than collision and covers events you cannot control—hail, theft, a tree falling on your car. Many people keep comprehensive but drop collision on older cars. Check your car's current value using NADA Guides or Kelley Blue Book before deciding.

Uninsured and underinsured motorist coverage protects you from other drivers

Uninsured motorist coverage (UM) pays for your injuries and your car's damage if the other driver has no insurance. Underinsured motorist coverage (UIM) pays the difference if the other driver's insurance is too low to cover your damages. In many states, UIM is optional; in others, it is included automatically unless you decline it in writing.

These coverages matter because roughly one in eight drivers on the road is uninsured, and many more are underinsured. If an uninsured driver hits you and causes $50,000 in injuries, your own uninsured motorist coverage pays for it—not the other driver's insurance, because they do not have any. Without UM coverage, you would have to sue the driver personally, which is difficult and often fruitless if they have no assets.

Carry uninsured motorist limits equal to or higher than your liability limits. If you carry $250,000 in liability, carry at least $250,000 in uninsured motorist coverage. The cost is usually $15 to $30 per six months and is worth it.

Medical payments coverage versus uninsured motorist bodily injury

Medical payments coverage (MedPay) pays for medical bills for you and your passengers, regardless of who caused the accident. It is capped at a limit you choose—usually $1,000, $2,500, $5,000, or $10,000. It pays quickly and does not require you to prove fault.

Uninsured motorist bodily injury (UMBI) is part of your uninsured motorist coverage and pays for your injuries only when the other driver is uninsured or underinsured. It requires you to prove the other driver was at fault, and it is subject to a deductible.

MedPay is useful if you have high medical bills or no health insurance, because it covers you even in accidents where you are partly at fault. UMBI is your protection when the other driver caused the accident but has no insurance. Many people carry both—MedPay for quick payment of immediate medical costs, and UMBI for larger injury claims. If you have good health insurance, MedPay is less critical.

Deductibles and how they affect your premium

A deductible is the amount you pay out of pocket before your insurance pays. Collision and comprehensive coverage have deductibles; liability does not. Common deductibles are $250, $500, $1,000, and $2,500.

Raising your deductible from $500 to $1,000 lowers your premium by 10 to 15 percent. Raising it to $2,500 can lower it by 20 to 30 percent. The trade-off is that if you have an accident, you pay more out of pocket. Choose a deductible you can actually afford to pay if you need to file a claim. If you have $2,000 in savings and choose a $2,500 deductible, you cannot afford to use your insurance.

For liability coverage, there is no deductible—your insurance pays from the first dollar. For uninsured motorist coverage, some states allow a deductible and some do not. Check your policy documents or ask your insurer.

How to decide on coverage limits: a worksheet

Start by writing down your assets: savings, home equity, retirement accounts, investment accounts, and the value of your car. Add them up. That total is what a judgment could reach if you cause a serious accident.

Next, check your state's minimum liability requirement. Then decide: do you want to protect your assets, or are you comfortable with the risk that a judgment could exceed your insurance and you would owe the difference?

If you want to protect your assets, your liability limits should equal or exceed your net worth. If your net worth is $150,000, carry at least $150,000 in liability coverage per person. If it is $500,000, carry $500,000.

For collision and comprehensive, ask yourself: if my car is totaled, can I replace it out of pocket? If yes, you can skip these coverages or use a high deductible. If no, carry them with a deductible you can afford.

For uninsured motorist coverage, carry limits equal to your liability limits. For medical payments, decide whether you need it based on your health insurance and how much you want to cover medical costs immediately after an accident.

Frequently Asked Questions

What happens if I cause an accident and my liability limit is too low?

Your insurance pays up to your limit, and you are personally responsible for anything above that. The injured person can sue you, win a judgment, and collect by garnishing your wages, seizing your bank accounts, or placing a lien on your home. This can last for years depending on your state's statute of limitations.

Can I skip collision and comprehensive if I own my car outright?

Yes, it is legal to skip them. But if your car is damaged or stolen and you cannot afford to replace it, you will have no way to repair it or buy another one. If your car is worth less than a few years of premiums, skipping these coverages may make financial sense. If your car is newer or you depend on it to get to work, keeping them is safer.

Does uninsured motorist coverage pay if I am partly at fault?

It depends on your state's rules. In some states, you must be hit by an uninsured driver while you are not at fault. In others, you can recover even if you are partially at fault, though your payment may be reduced. Check your policy or ask your insurer about your state's rules.

Is medical payments coverage the same as health insurance?

No. Medical payments coverage is part of your car insurance and pays for medical bills from a car accident only. Health insurance covers medical bills from any cause. MedPay is useful because it pays quickly and does not count against your health insurance deductible, but it does not replace health insurance.

How often should I review my coverage limits?

Review your coverage whenever your assets change significantly—when you buy a home, pay off a mortgage, receive an inheritance, or sell a major asset. You should also review it every few years to make sure your limits still match your net worth. As you build wealth, your coverage should increase to protect it.