Start with your state's minimum, then add based on your situation

Every state requires a legal minimum of liability insurance — the coverage that pays for damage or injury you cause to someone else. That minimum varies by state: some require as little as $15,000 per person injured, while others demand $50,000 or more. You can find your state's exact requirement on your state insurance commissioner's website or by calling your insurance agent.

But the legal minimum is rarely enough. If you cause a serious accident, the injured person can sue you personally for anything beyond what your insurance covers. That means your wages, bank account, and home can be at risk. Most financial advisors recommend carrying liability limits of at least $100,000 per person and $300,000 per accident — sometimes written as 100/300 — though your own situation may call for more.

The rest of your coverage depends on what you own, what you owe, and how much financial loss you could actually absorb. A financed car requires collision and comprehensive coverage because the lender demands it. An older paid-off car might not need either. Uninsured motorist coverage protects you if someone without insurance hits you. Deductibles — the amount you pay out of pocket before insurance kicks in — let you lower your premium in exchange for accepting more risk yourself.

Key Takeaways

  • Your state sets a legal minimum for liability coverage, but that minimum often leaves you personally responsible for costs beyond the limit if you cause a serious accident.
  • Collision and comprehensive coverage are required by lenders on financed vehicles but optional on cars you own outright, though they protect your own vehicle from damage.
  • A higher deductible ($1,000 instead of $500) lowers your monthly premium but means you pay more out of pocket when you file a claim.
  • Uninsured motorist coverage protects you if an uninsured or hit-and-run driver injures you or damages your car, and costs very little relative to the protection it offers.
  • Your coverage needs change when you pay off a car loan, move to a new state, or add a teenage driver to your policy.

Liability coverage: the legal floor and the financial reality

Liability insurance has two parts: bodily injury (medical bills, lost wages, pain and suffering for people you injure) and property damage (repair or replacement of their vehicle or other property). Your state law sets minimums for each. In California, for example, the minimum is 15/30/5 — $15,000 per person for bodily injury, $30,000 total per accident, and $5,000 for property damage. In New York, it's 25/50/25. In Texas, it's 30/60/25.

These minimums were set years ago and have not kept pace with actual medical costs or vehicle prices. A single serious injury can easily cost $100,000 or more in medical care alone. A multi-car accident on a highway can exceed $500,000 in total damage. If your liability limit is $30,000 and the actual cost is $150,000, you are personally responsible for the $120,000 gap — and a court can garnish your wages or place a lien on your home to collect it.

The cost difference between the state minimum and a higher limit is usually small. Raising your bodily injury limit from 25/50 to 100/300 might add $10 to $30 per month to your premium, depending on your age, driving record, and location. Most people find that trade-off worth making.

Collision and comprehensive: protecting your own car

Collision coverage pays to repair or replace your car if you hit another vehicle, a tree, a guardrail, or any fixed object. Comprehensive coverage pays for theft, vandalism, weather damage (hail, flooding), animal strikes, and glass breakage. If you financed your car, your lender requires both. If you own the car outright, they are optional — but that does not mean you should skip them.

The decision hinges on the car's value and what you could afford to replace it. If your car is worth $3,000 and you have $10,000 in savings, paying for collision and comprehensive makes sense: you are protecting an asset you cannot easily replace. If your car is worth $25,000 and you have $200,000 in savings, you might choose to self-insure — skip the coverage and pay for repairs yourself if something happens. The math is personal.

Your deductible shapes the monthly cost. A $500 deductible is common and means you pay $500 toward any repair, and insurance covers the rest. A $1,000 deductible lowers your premium by roughly 10 to 15 percent. A $250 deductible raises it. Choose the deductible you could actually pay out of pocket without hardship, because that is what you will owe if you file a claim.

Uninsured and underinsured motorist coverage

Uninsured motorist (UM) coverage pays your medical bills and lost wages if someone without insurance injures you in an accident. Underinsured motorist (UIM) coverage kicks in when the at-fault driver has insurance, but their limit is too low to cover your actual damages. About one in eight drivers nationwide carries no insurance at all, and that number is higher in some states.

UM and UIM coverage is cheap — often $5 to $15 per month — because claims are relatively rare. But when you need it, it can save you from a lawsuit or medical debt. Your UM limit should match or exceed your liability bodily injury limit. If you carry 100/300 liability, carry at least 100/300 UM as well. Some states require it; others make it optional but strongly recommended.

Hit-and-run accidents are also covered under UM if you can show you made a reasonable effort to identify the other driver — usually meaning you called police and filed a report. Keep that police report number; you will need it to file a claim.

Medical payments coverage and personal injury protection

Medical payments coverage (Med Pay) pays your medical bills after an accident, regardless of who was at fault. It covers you, your passengers, and even pedestrians you hit. The limit is usually $1,000 to $5,000 per person. It does not cover lost wages or pain and suffering, only actual medical expenses. In no-fault states like Michigan and Florida, this coverage is called personal injury protection (PIP) and is required by law; it covers more, including lost wages and some other costs.

If you have health insurance, Med Pay is less critical because your health plan will cover medical bills. But if you have a high deductible or no health insurance, Med Pay can prevent you from paying out of pocket for accident-related injuries. It is usually inexpensive — $5 to $15 per month — and can be worth adding.

How your situation changes what you need

A teenager driving your car needs higher liability limits than you might carry alone, because young drivers cause more accidents. If you add a 16-year-old to your policy, expect your premium to rise 50 to 100 percent, and consider raising your liability limit to 100/300 or higher. A second or third accident on your record also argues for higher limits, because you have already shown you are more likely to cause damage.

When you pay off your car loan, you can drop collision and comprehensive if you choose — the lender no longer requires them. But do not drop them automatically. If you still owe money on credit cards or have little savings, keeping them protects you from a financial crisis if your car is totaled. If you have paid off your car and have substantial savings, dropping them and self-insuring makes sense.

Moving to a new state changes your minimum requirements and may change your rates. Some states are more expensive than others, and some require coverage types that your old state did not. When you move, contact your insurance agent to update your policy and confirm you meet the new state's requirements.

Bundling, discounts, and keeping your premium reasonable

Bundling your car insurance with homeowners or renters insurance usually saves 10 to 25 percent on your total premium. Maintaining a clean driving record — no accidents or violations for three to five years — qualifies you for a good driver discount. Taking a defensive driving course can lower your rate by 5 to 10 percent and may also reduce points on your license if you get a ticket. Some insurers offer usage-based discounts if you let them monitor your driving through an app.

Raising your deductible is the fastest way to lower your premium if you need to cut costs. Moving from a $500 to a $1,000 deductible typically saves 10 to 15 percent. Dropping collision and comprehensive on an older car also cuts costs significantly. But do not drop liability coverage or reduce it below your state's minimum — that is the one coverage you cannot afford to skimp on, because it protects your personal assets.

Frequently Asked Questions

Do I need collision and comprehensive if my car is paid off?

No, they are optional once you own the car outright. But if you could not afford to replace or repair your car without financial hardship, keeping them makes sense. The decision depends on your car's value and your savings, not on whether you have a loan.

What happens if I cause an accident and my liability limit is too low?

The injured person can sue you for the difference. A court can garnish your wages, place a lien on your home, or seize your bank accounts to pay the judgment. This is why carrying limits higher than your state's minimum is important.

Is uninsured motorist coverage worth the cost?

Yes. It costs very little — usually $5 to $15 per month — and protects you against drivers who have no insurance. About one in eight drivers nationwide carries no insurance, so the risk is real. The protection is cheap relative to what it covers.

Can I lower my premium without dropping coverage?

Yes. Raise your deductible, bundle with other policies, maintain a clean driving record, take a defensive driving course, or ask about usage-based discounts. Shopping around every two to three years also often uncovers lower rates at other insurers.

What coverage do I need if I drive for a rideshare service?

Personal auto insurance does not cover rideshare driving. You need commercial or rideshare coverage, which most insurers offer as an add-on. Contact your insurance agent to add it before you start driving for Uber, Lyft, or similar services.