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Car Insurance Coverage Limits

All states require that you show some form of financial responsibility, and car insurance is the most common method of meeting this requirement.

Take some time to understand your car insurance limits and coverages and decide how much you need, so you don’t realize after you get in an accident that it wasn’t sufficient.

What Are Car Insurance Coverage Limits?

Car insurance coverage limits are maximum amounts of money that your car insurance will pay out if you make a claim.

For example, if the limit on your collision coverage is $20,000, that is the most that your policy would pay out for damages to your vehicle after a collision.

How Much Car Insurance Do I Need?

There are two different answers to this question. First, you need a certain amount to comply with your state’s law. Second, you need enough to protect your assets.

State-Required Minimum Limits

All states require a minimum amount of car insurance for you to drive legally. Most states have minimum requirements for liability insurance, which pays for the other driver’s injuries (and those of his passengers), as well as vehicle damage to his car.

You’ll often see limits written using two or three numbers, such as 25/50 or 25/50/20, especially when you see state-required minimum limits.


Say your state imposes minimum liability insurance limits of 25/50/10. This means that policy would pay;

  • $25,000 for bodily injury for a single person’s injuries in an accident you cause.
  • $50,000 for bodily injury for all occupants’ injuries in an accident you cause.
  • $10,000 for damage to the other driver’s property.

Some states are considered no-fault states and have no-fault insurance, or personal injury protection coverage (PIP insurance). That means that, regardless of who causes the accident, your insurance company will cover your injuries after an accident.

No-fault laws were imposed to allow drivers to get their medical bills paid right away, instead of having to wait for the completion of a full accident investigation by the car insurance companies.

Check our Car Insurance section to view which types of insurance your state requires and the minimum limits that apply.

Other Factors

Quite often, your state’s required minimum limits won’t provide sufficient coverage after an accident.

When determining how much car insurance you need, consider the following factors:

  • Assets: If you have a high net worth, you might want to increase your coverage limits. If you cause an accident, the other driver can go after you in court to obtain money beyond what your insurance company pays.
  • Finances: Consider how much you can afford to pay for premiums each month.
  • Location: If you live in an urban area, you’re statistically more likely to be in an accident and should consider higher coverage. If you park on the street instead of in a garage, you may be more susceptible to theft and should consider comprehensive coverage.
  • Vehicle type: If you have a new vehicle, it may be worthwhile to get collision coverage to pay for damage to your car in an accident, and comprehensive coverage to pay for damage to your car due to other reasons.
    • If you have an old, low-value vehicle, you might not want to pay for these coverages.
  • Other drivers in your household.

Typically, most insurance experts advise purchasing as much car insurance coverage as you can reasonably afford; however, taking the above into consideration will help you determine the right limits for you.

The Benefits of Higher Insurance Limits

Getting higher limits may costs you more upfront but can save you financially in the event of an accident.

The way car insurance works, you’re responsible for paying everything that your insurance company doesn’t pay.

For example, if your limit is 10/20/10, you’re covered for up to $10,000 for an injury to the other driver, $20,000 for the total passengers’ injuries, and $10,000 for damage to the other person’s car.

If the injuries cost, say, $100,000, you’re on the line for $80,000, since your insurance company will only pay $20,000. The other party can go after your assets, such as your house, to get the $80,000 from you, so it may be worthwhile to increase your coverage if you’re worried about protecting them.

When to Consider Lower Limits

The primary purpose of insurance is to protect your property and other assets against risk. If you don’t own property or have many other assets, and your car is old, you can consider keeping your coverage closer to the lower limit allowed in your state.

You might also consider cutting out certain coverages, such as collision or comprehensive since the monthly premiums may cost you more than you’d get paid out in the event of an accident.

Lower limits may also be appropriate if you don’t drive much or live in an area with low population density.

How to Shop for Car Insurance

Determine your needs, finances, and assets before getting quotes from multiple car insurance companies.

If you have questions, speak with an agent about your personal needs to customize a policy with limits that work for you. Don’t just assume that the minimum amount of insurance legally required is adequate.

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