Car insurance coverage limits aren’t a fun topic to read about. But you need to understand them if you want to know whether you’re properly insured.
Coverage limits refer to the maximum dollar amount of coverage that an auto insurance policy provides. These policies include multiple coverage types, which can and should, have different maximum coverage limits.
Below is a list of the different types of auto insurance coverage and some thoughts about coverage limits for each one. Depending on the state, some of these coverage types may be required, some may be optional, and some may be unavailable.
The shorthand for insurance policy limits used by insurers looks like this: 25/50/25. This means, the coverage limits would be:
While it’s smart to have high limits, more coverage means higher rates. Make sure you compare quotes from multiple insurance companies so you don't overpay for protection you may never need.
The age of your vehicle is an important factor to consider when deciding on coverage limits. This is especially true for collision and comprehensive coverage. Most states don’t legally require collision and comprehensive coverage. However, you should protect the investment of your new car. We recommend keeping collision and comprehensive coverage in your policy even if you paid cash for your new vehicle. You should also keep them if your finance company didn’t require it.
Be aware of your coverage limits as your car ages. At some point collision and comprehensive coverage won’t make sense. We suggest dropping this coverage on cars worth less than ten times the annual cost of the collision and comprehensive coverage.
You should never drop liability coverage. An accident can lead to huge costs no matter how much your car is worth. A lawsuit due to lack of coverage could leave your assets at risk. Additionally, your state almost certainly requires liability insurance to operate a vehicle.
Almost every state in the U.S. requires drivers to have a minimum level of liability auto insurance coverage. However, even in New Hampshire, where it isn’t required, the majority of drivers have liability coverage.
Most drivers need more than the state mandated minimum coverage. We recommend liability coverage limits of at least $100,000 for one person injured in an accident and $300,000 to cover everyone involved.
Please visit our Minimum Car insurance Coverage Requirements by State article for more information.
A: The following limits are typical of well-insured drivers.
A: Many states only require a small amount of property damage coverage. Some states require as little as $5,000! That won’t cover much, especially if a car is totaled. If you’re the at-fault driver and your insurance doesn’t cover the other driver's costs, they can sue you for the difference between what your insurance covers and their losses. That’s something important to consider when making decisions about your insurance coverage limits.
A: It depends on your finances. We suggest adding up all of your current assets and plus the amount you expect to earn over the next five years. This is the amount you’ll want an umbrella insurance policy to cover. You may or may not have a large enough amount to warrant an umbrella policy. Your agent should be able to provide specific recommendations for you.
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