Auto Insurance Coverage Limits: Choosing The Right Amount

Auto insurance coverage limits should be chosen based on your state's requirements, your net worth, and the value of your vehicle.

In the US, liability insurance is the main type of auto insurance mandated by law. It covers damage and injuries you cause to others in an accident. The most common minimum liability coverage limits are $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for property damage. However, your state's requirements may differ, and it is essential to be aware of and comply with these requirements.

Beyond the legal requirements, the amount of auto insurance coverage you need depends on your financial situation and the value of your assets. It is generally recommended to have enough liability coverage to protect your assets in the event of an accident. This means that your coverage limits should ideally be equal to or higher than your net worth.

Additionally, if you lease or finance your vehicle, your lender may require you to purchase additional types of insurance, such as collision and comprehensive coverage, to protect their investment.

Liability insurance

The most common minimum limits for liability insurance are $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for property damage. However, state requirements vary, and it's important to know the specific requirements in your state. For example, in California, the minimum requirements are $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single car accident, and $5,000 for property damage.

When choosing liability insurance coverage limits, consider your net worth and how much you have to lose in the event of an accident. You want to have enough liability insurance to cover the cost of potential injuries, property damage, and lawsuits that may arise from an accident. A good rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit against you if you cause a car accident.

You can also choose between split coverage limits and single coverage limits. Split coverage limits define separate limits for bodily injury per person, bodily injury per accident, and property damage per accident. Single coverage limits, on the other hand, provide a single limit for any liability costs arising from an accident, regardless of whether they are property damage or injuries.

In addition to liability insurance, you may also want to consider other types of optional coverage, such as uninsured motorist coverage, medical payments coverage, and personal injury protection, depending on your specific needs and state requirements.

Comprehensive coverage

If your vehicle has a high cash value or you cannot afford to repair or replace your vehicle out of pocket, comprehensive coverage is recommended. It is also a good option if you want peace of mind and want to be covered against any unforeseen events.

Unlike some coverages, you don't select a limit for comprehensive coverage. The maximum it will pay out is based on the actual cash value of your vehicle, and you will be responsible for paying the deductible you selected.

Collision insurance

When purchasing collision insurance, you will need to select a deductible, which is the amount you will pay out-of-pocket before your insurance coverage begins paying for a claim. A higher deductible will result in lower premiums. Collision insurance can be expensive, but selecting a deductible of $500 or more can help reduce the cost of premiums.

Medical payments coverage

When deciding on the coverage limits for MedPay, it is important to consider your specific financial situation, the cost of adding MedPay to your policy, and whether you already have health insurance. MedPay is typically sold in small amounts, ranging from $1,000 to $5,000, and can be a relatively inexpensive addition to your policy, with many policyholders adding coverage for $5 to $8 per month.

It is worth noting that MedPay has its limitations and will not cover costs that exceed your policy's stated limit, childcare expenses during recovery, wage reimbursement, or medical costs for injuries to other drivers involved in the accident. Additionally, MedPay is not the same as health insurance and only provides coverage in the event of an automobile accident. If you have both MedPay and health insurance, MedPay will pay for covered expenses related to the accident first, and your health insurance will cover the remaining costs once you reach the limit of your MedPay coverage.

In summary, Medical Payments Coverage can provide valuable financial protection in the event of an accident, helping to cover initial medical expenses for you and your passengers. When choosing your coverage limits, consider your financial situation, the affordability of higher coverage limits, and the likelihood of needing this type of coverage.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage comes into play when you are hit by a driver who does not have auto insurance. On the other hand, underinsured motorist coverage protects you when the at-fault driver doesn't have sufficient insurance to cover the damages or injuries they caused. In some states, you are required to have both types of coverage, while in others, you may have the option to purchase it.

If you're involved in a hit-and-run accident or are hit by an uninsured driver, you can file a claim against your uninsured motorist coverage. This coverage typically includes uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). UMBI covers medical expenses for you and your passengers, while UMPD covers damage to your vehicle.

Underinsured motorist coverage consists of underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD). UIMBI covers medical expenses for you and your passengers if the at-fault driver's insurance limits are too low, while UIMPD covers damage to your vehicle.

When deciding on the limits of your uninsured/underinsured motorist coverage, consider choosing limits that match your liability coverage. For UMPD, select a limit that is close to the value of your vehicle.

Frequently asked questions