2024-01-01 · auto, coverage

How Much Auto Insurance Do I Need?

Overview

Auto coverage should protect your income, savings, and future earnings. State minimum limits are rarely enough for serious accidents.

Choosing liability limits

Match limits to your assets and future income.
Consider an umbrella policy if your net worth is higher.

Choosing deductibles

Higher deductibles lower premiums but increase out-of-pocket costs. See our breakdown of auto insurance cost per month for typical rate ranges.
Pick a deductible you can comfortably pay on short notice.

When to adjust coverage

Buying a new car or taking out a loan.
Adding a teen driver or moving to a busier area.

Next steps

Review your current policy limits and price higher options to see the real premium difference.

Match liability limits to your actual exposure

Liability limits exist to protect the assets an injured party could come after if you cause a serious crash. A simple framework is to add up your home equity, non-retirement savings, and any other attachable assets, then set your liability limit at or above that total. A common middle-tier limit like 100/300/100 is often adequate for renters with modest savings, while homeowners with meaningful equity typically need higher limits.

Those three numbers in a split limit are not random. They represent:

Per-person bodily injury (the most the policy pays for any one injured person).
Per-accident bodily injury (the total the policy pays for all injured people in one crash).
Property damage (the most the policy pays for damage to the other driver’s car or other property).

If your assets exceed what a standard auto policy can reasonably cover, an umbrella policy can sit on top of your auto liability and extend protection into the millions without rewriting the underlying policy.

When to keep or drop collision and comprehensive

Collision and comprehensive pay for damage to your own vehicle, so their value is tied directly to what the car is worth. A widely cited industry rule of thumb (attributed to the Insurance Information Institute) is to compare the annual premium for collision and comprehensive, plus the deductible you would pay in a claim, against the current market value of the vehicle. If that cost approaches or exceeds roughly ten percent of the car’s market value, many drivers choose to drop physical damage coverage.

Two things to remember before dropping either coverage:

A lender or lessor will require physical damage coverage for as long as the vehicle is financed or leased, so this decision only applies to cars you own outright.
Once you drop these coverages, any loss from a crash, theft, hail, or fire comes out of your own pocket, so it helps to know what your coverage for totaled cars would have paid if you were still carrying it.

Why UM/UIM is often the underrated line

Uninsured and underinsured motorist coverage (UM/UIM) pays for your own injuries when the at-fault driver has no insurance or carries limits too low to cover your medical bills and lost wages. In many states a meaningful share of drivers on the road are uninsured, and even insured drivers often carry only the state minimum, which can be exhausted quickly after a serious injury.

A practical rule is to match your UM/UIM limits to the liability limits you chose in the first section rather than leaving them at the state minimum. If you felt comfortable buying 100/300 in liability to protect others, you should feel equally comfortable carrying 100/300 to protect yourself. See our full explainer on uninsured motorist coverage for how this coverage is triggered and what it pays.

What to do if the “right” coverage is not affordable

If the limits you actually need push the premium past your budget, the answer is almost never to cut liability. Cut somewhere else first:

Raise deductibles on collision and comprehensive before cutting liability limits.
Ask about telematics or usage-based programs that reward safe driving with a short-term discount.
Ask about low-mileage discounts if your annual miles are below the carrier’s threshold.
Re-quote with at least three carriers using the same limits, since the same driver profile can price very differently from one insurer to the next.

For a fuller list of levers, see our guide on how to lower insurance premiums.