When shopping for auto insurance, you'll quickly notice a wide range of coverage options and prices. At the low end are state minimum requirements—the legal bare minimum. At the higher end are comprehensive packages that cover almost everything. How do you decide what's right for you?
This guide helps you understand what minimum coverage actually provides, why it might not be enough, and how to determine the right level of protection for your specific situation.
What State Minimum Coverage Actually Means
Every state (except New Hampshire) requires drivers to carry minimum amounts of liability insurance. These minimums vary significantly by state. For example:
- California: 15/30/5 (15,000 per person, $30,000 per accident for bodily injury, $5,000 for property damage)
- Texas: 30/60/25
- New York: 25/50/10
- Florida: 10/20/10 (with $10,000 PIP required)
These numbers might look adequate at first glance, but consider what they mean in real-world terms. A $5,000 property damage limit in California might not even cover a fender bender with a newer vehicle. A $15,000 bodily injury limit could be exhausted by a single emergency room visit.
The Real Cost of Minimum Coverage
Minimum coverage creates a gap between what your insurance pays and what you might actually owe. You're personally responsible for anything beyond your policy limits.
A Real-World Example
Imagine you cause an accident while carrying minimum 15/30/5 coverage:
- The other driver's car needs $12,000 in repairs, but your property damage limit is $5,000. You owe $7,000 out of pocket.
- The other driver has medical bills of $45,000. Your policy covers only $15,000 per person. You owe $30,000.
- Total out-of-pocket: $37,000—and that doesn't include your own car repairs or medical bills.
If you can't pay, you might face wage garnishment, liens on your property, or bankruptcy. The few dollars saved monthly on minimum coverage can result in life-altering financial consequences.
Consider This
The average cost of a new car is over $45,000. Even a used car averages around $25,000. State minimum property damage limits of $5,000-$15,000 are woefully inadequate for most accidents involving newer vehicles.
What Recommended Coverage Looks Like
Insurance experts and consumer advocates typically recommend coverage significantly higher than state minimums:
Liability Coverage
Most recommendations suggest at least 100/300/100:
- $100,000 per person for bodily injury
- $300,000 per accident for bodily injury
- $100,000 for property damage
Some advisors recommend even higher limits, especially if you have significant assets to protect.
Collision and Comprehensive
These coverages protect your own vehicle. They're typically required if you have a car loan or lease. Even if optional, they're worth considering if your car has significant value.
Uninsured/Underinsured Motorist Coverage
About 12% of drivers nationwide are uninsured, and many more have only minimum coverage. This protection is strongly recommended, with limits matching your liability coverage.
Medical Payments or Personal Injury Protection
These cover medical expenses for you and your passengers regardless of fault. They're especially valuable if you have limited health insurance.
Factors to Consider When Choosing Coverage
The right coverage level depends on your personal circumstances. Consider these factors:
Your Assets and Income
If you own a home, have savings, or earn a good income, you have more to protect. Someone with nothing could potentially walk away from a judgment, but if you have assets, they're at risk. Your liability limits should at least cover your net worth.
Your Vehicle's Value
Collision and comprehensive coverage make sense when the cost is reasonable relative to what you'd receive in a claim. If coverage costs $600 per year and your car is worth $3,000, you might reconsider. But if your car is worth $20,000, that coverage provides real financial protection.
Your Financial Cushion
Could you pay a $1,000 deductible tomorrow without hardship? What about $2,500? Your ability to cover deductibles and potential out-of-pocket costs should influence your coverage choices.
Your Risk Tolerance
Some people sleep better knowing they're fully protected. Others are comfortable assuming more risk for lower premiums. Neither approach is wrong, but be honest with yourself about your comfort level.
The True Cost Difference
Here's what often surprises people: the difference between minimum and recommended coverage isn't as large as you might expect.
Increasing from minimum liability (say, 25/50/25) to recommended levels (100/300/100) might only add $200-400 per year to your premium—that's roughly $17-33 per month. That's far less than a single medical bill or car repair would cost out of pocket.
The jump from minimum to adequate coverage is the most cost-effective coverage you can buy. Each additional dollar of premium buys substantial additional protection. As you increase limits further, the cost-per-dollar of coverage goes up, but you're also protecting yourself against increasingly severe scenarios.
When Minimum Coverage Might Make Sense
While generally not recommended, there are limited situations where minimum coverage might be appropriate:
- You have very few assets: If you have no home equity, minimal savings, and modest income, there's less for a judgment to take.
- Your car has minimal value: A 15-year-old car worth $2,000 might not warrant collision and comprehensive coverage.
- You rarely drive: If you drive only a few times a month, your exposure is lower than a daily commuter.
- It's truly temporary: If you're between jobs and need to cut expenses for a month or two, you might reduce coverage briefly—but return to adequate coverage as soon as possible.
Even in these situations, carrying only minimum liability creates real risk. Consider at least increasing liability limits while potentially dropping collision and comprehensive.
A Framework for Deciding
Use these steps to determine your appropriate coverage level:
Step 1: Calculate Your Net Worth
Add up your assets (savings, home equity, investments, valuable property) and subtract your debts. This gives you a baseline for how much liability coverage you might need.
Step 2: Assess Your Vehicle's Value
Look up your car's current value on Kelley Blue Book or similar sites. Compare this to what collision and comprehensive coverage would cost.
Step 3: Consider Your Health Insurance
If you have good health insurance with low out-of-pocket maximums, you might need less medical payments coverage. If you're uninsured or have a high-deductible plan, additional medical coverage becomes more important.
Step 4: Get Quotes at Different Levels
Request quotes for minimum coverage, recommended coverage (100/300/100), and something in between. The cost differences might surprise you.
Step 5: Choose the Maximum You Can Reasonably Afford
Insurance exists to protect you from financial disaster. Within your budget, buy as much protection as you can.
Remember
You can always adjust your coverage. If your financial situation changes—for better or worse—contact your insurance company to update your policy accordingly.
Don't Forget Umbrella Insurance
If you have significant assets to protect, consider umbrella insurance once you've maximized your auto liability limits. Umbrella policies provide additional liability coverage—typically $1 million or more—that kicks in after your auto or homeowners insurance is exhausted. They're surprisingly affordable, often costing $200-400 per year for $1 million in coverage.
The Bottom Line
State minimums exist to ensure drivers can cover at least some of the damage they cause. They're not designed to fully protect you or the people you might injure. The gap between minimum requirements and adequate protection represents real financial risk.
For most drivers, the additional cost of recommended coverage is manageable and provides genuine peace of mind. A serious accident with inadequate coverage can affect your finances for years or even decades. A slightly higher insurance premium is a small price to pay to avoid that outcome.
Take time to evaluate your situation, understand what you're buying, and make an informed choice. Your future self will thank you for thinking this through now, rather than after an accident when it's too late to change your coverage.