Every state that requires auto insurance also sets a minimum amount you have to carry. Buy that minimum, and you’re legal. Your registration goes through, you can drive without getting a ticket, and technically you’re insured.
But legal and adequate are two very different things. State minimums were often set decades ago and haven’t kept pace with actual medical costs, car prices, or lawsuit settlements. Driving with minimum limits is a little like wearing a seatbelt that snaps at 20 mph. It satisfies the requirement. It won’t actually protect you when something goes seriously wrong.
Here’s how to figure out how much you actually need.
Why State Minimums Are a Starting Point, Not an Answer
Take California as an example. The state requires $15,000 per person and $30,000 per accident in bodily injury liability, plus $5,000 in property damage. Those numbers look reasonable until you compare them to real costs.
A single ambulance ride can run $1,500 to $3,000. An emergency room visit for a serious injury — broken bones, internal bleeding, a head injury — can easily reach $30,000 to $50,000 before any surgery happens. A week in the ICU? That’s $10,000 to $30,000 per day. If you seriously injure two or three people in one accident, California’s $30,000 per-accident limit is gone before anyone even sees a surgeon.
What happens to the rest? You pay it. Out of your own savings, your home equity, your future wages. If a court enters a judgment against you that exceeds your liability limits, the other party can pursue your assets and, in many states, garnish your wages. That $25 or $30 you saved per month by carrying minimum limits can cost you $100,000 or more after a bad accident.
Most people don’t realize how exposed they are until it’s too late to do anything about it.
How to Calculate the Right Liability Limits
The simplest rule: your liability limits should at least equal your net worth. If you have $200,000 in savings and home equity, you need at least $200,000 in bodily injury protection. If someone sues you successfully and your insurer pays out your limit, they can’t come after you for more than you’re worth. But if your limit is $50,000 and your net worth is $300,000, you still have $250,000 of exposure above the policy limit.
A common recommendation is to carry at least 100/300/100 limits — $100,000 per person, $300,000 per accident for bodily injury, and $100,000 for property damage. For most middle-class families, this is a reasonable floor. If you own a home, have significant retirement savings, or earn a high income, consider 250/500/100 or higher.
The premium difference between 25/50 limits and 100/300 limits is often $15 to $30 a month. That’s not nothing, but it’s a small price for a significant increase in protection.
Uninsured and Underinsured Motorist Limits
Your uninsured motorist limits should generally match your bodily injury liability limits. Here’s why: these coverages are two sides of the same coin. Your liability limits protect other people from you. Your UM/UIM limits protect you from other people.
If you carry 100/300 in liability but only $25,000 in uninsured motorist coverage, you’re well-protected as a defendant but almost unprotected as a victim. Given that roughly one in eight drivers on the road is uninsured — and many more are underinsured with minimum-limit policies — this is a real risk, not a theoretical one.
Match your UM/UIM limits to your liability limits, or come as close as your state allows. Some states cap UM/UIM at or below your liability limits. Work within those rules, but max them out within those constraints.
When to Carry Collision and Comprehensive
Whether to carry collision and comprehensive is a different question from liability limits. Liability protects your financial life. Collision and comprehensive protect your car. And the math there depends heavily on what your car is actually worth.
The standard guidance: if your annual combined premium for collision and comprehensive exceeds 10% of your car’s market value, dropping those coverages is worth considering. So if your car is worth $4,000 and you’re paying $600 a year for collision and comprehensive, you’re paying 15% of the car’s value annually for coverage that can never pay out more than $4,000 minus your deductible.
Run the numbers. Say your car is worth $4,000 and you have a $1,000 deductible. The maximum you can ever collect on a collision claim is $3,000. If you total the car, that’s what you get. If you’re paying $700 a year for collision and comprehensive, you’d recover your premium cost in about four years of claim-free driving. But four years from now, that $4,000 car is worth $2,000 — meaning your max payout dropped to $1,000. The math gets worse over time.
On a newer car, or any car you couldn’t afford to replace out of pocket, collision and comprehensive are almost always worth it. On a car you own free and clear that’s worth less than $5,000 to $6,000, dropping those coverages and pocketing the premium is often the smarter financial move.
Deductibles: The Other Variable
Collision and comprehensive both have deductibles — the amount you pay out of pocket before insurance covers the rest. Common options are $250, $500, $1,000, or $2,500.
Higher deductibles mean lower premiums and more out-of-pocket cost when you file a claim. Lower deductibles mean higher premiums but smaller bills when something goes wrong.
The right deductible is the highest amount you can comfortably pay on short notice. If you have $2,000 in savings, a $2,500 deductible is a bad idea — you’d be short $500 if you needed to file a claim tomorrow. If you have $10,000 in an emergency fund, a $1,000 or even $2,500 deductible might make sense. You capture premium savings in the years you don’t file a claim and can absorb the deductible when you do.
One thing people forget: every time you file a small collision claim, your premium typically goes up at renewal. If your repair estimate is $1,200 and your deductible is $1,000, you’re filing a claim for $200 — and potentially triggering a rate increase that costs you more over the next three years than the $200 was worth. For small claims close to your deductible, paying out of pocket is often cheaper in the long run.
Medical Coverage: PIP and MedPay
Personal injury protection and medical payments coverage both pay your medical bills after an accident, regardless of who’s at fault. PIP is required in no-fault states. MedPay is optional in most others.
How much you need here depends on your health insurance situation. If you have good health insurance with low deductibles and out-of-pocket maximums, a modest PIP or MedPay limit — $5,000 to $10,000 — is probably sufficient to handle the immediate bills while health insurance covers the rest.
If you have a high-deductible health plan, or limited health coverage, higher PIP limits make sense. Some states allow PIP limits up to $50,000 or more. In Michigan, no-fault PIP coverage historically provided unlimited lifetime medical benefits for accident injuries, though that changed in 2020 with an opt-down option.
The value of PIP and MedPay isn’t just the dollar amount — it’s the speed. Your own auto insurance pays your medical bills quickly, without waiting for fault to be determined. That matters when you have bills due in 30 days and a legal dispute that might take 18 months to resolve.
When an Umbrella Policy Makes Sense
Personal umbrella insurance adds a layer of liability protection that sits above all your other policies. A $1 million umbrella typically costs $150 to $300 per year and covers bodily injury and property damage claims above your auto and homeowners policy limits.
If you have significant assets — a paid-off home, investment accounts, substantial retirement savings, a high income — an umbrella policy is almost always worth it. Here’s why: your auto liability limit might be $300,000. A serious accident with multiple injuries and a lawsuit could generate $700,000 in claims. Your umbrella picks up the $400,000 above your auto limit, up to the umbrella’s limit. Without it, that $400,000 comes from you personally.
Umbrella policies typically require you to carry certain minimum liability limits on your underlying auto and home policies — often 100/300/100 on auto. So the umbrella and your base policy work as a system: the base policy pays up to its limit, then the umbrella takes over.
For drivers who own homes, have families, or earn solid incomes, a $1 million umbrella is one of the best insurance values available. A few hundred dollars a year for a million dollars of additional protection is hard to beat.
The Bottom Line on Coverage Amounts
There’s no single right answer that applies to everyone. A 22-year-old renting an apartment with $3,000 in savings needs a different policy than a 45-year-old with a home, a retirement account, and two kids. But a few principles hold across most situations.
Don’t anchor on state minimums. They’re a legal threshold, not a financial protection strategy. Carry liability limits that at least match your net worth. Match your UM/UIM limits to your liability limits. Ask yourself honestly whether you could replace your car out of pocket before dropping collision and comprehensive. And if you have meaningful assets, price out an umbrella policy — you’ll probably be surprised how affordable it is.
The point of insurance isn’t to check a box. It’s to make sure that one bad day on the road doesn’t unravel everything you’ve built. Getting those limits right is how you actually do that.
How Driving History Affects What You Can Get
One thing people sometimes overlook: your driving record affects not just what you pay, but what insurers are willing to offer you. Multiple at-fault accidents or serious violations can make it hard to get a standard market policy. Some insurers won’t write a policy for you at all. Others will, but at much higher rates through what’s called the nonstandard or “high-risk” market.
This matters for coverage decisions because if you’re in the high-risk market, your premium is already elevated. At that point, balancing deductible choices and optional coverages becomes especially important. A higher deductible might make sense to keep the total premium manageable, as long as you have the cash reserves to back it up.
And if you have a clean record, protect it. A single at-fault accident can raise your premium 30% to 50% at renewal. That’s potentially hundreds of dollars a year for three to five years. Factor that in when you’re deciding whether to file a small claim or pay out of pocket. The premium impact is often worse than the out-of-pocket cost of a minor repair.
Shopping for Coverage vs. Shopping for Price
Most people shop for auto insurance by looking for the lowest premium. That’s understandable — insurance is expensive and nobody loves paying for it. But shopping purely on price usually means comparing minimum-limit policies, which is like comparing hotel rooms based only on whether they have a bed. The differences that matter aren’t captured in the price alone.
When you compare quotes, compare them at the same coverage levels. Ask two or three insurers for quotes with identical limits — 100/300/100, $1,000 deductibles, matching UM/UIM limits. Now you’re comparing apples to apples. You’ll see real price differences without giving up protection to get them. Sometimes a company is simply more competitive on certain driver profiles. That’s worth finding.