The minimum your state requires, and why you probably need more

Every state requires you to carry liability insurance — it pays for damage or injury you cause to someone else. The minimum amounts vary by state, but most require at least $25,000 per person and $50,000 per accident for bodily injury, plus $25,000 for property damage. You can find your state's exact minimums on your state insurance commissioner's website or by calling your state's Department of Motor Vehicles.

But the state minimum is often not enough. If you cause a serious accident and the other person's medical bills or car repairs exceed your liability limit, they can sue you personally for the difference. That is why most lenders require you to carry higher limits if you have a loan or lease on your car — typically $100,000 per person and $300,000 per accident. If you own your home or have savings, carrying limits higher than your state's minimum protects those assets.

The other coverage types — collision, comprehensive, and uninsured motorist — are optional in most states, but your lender will require collision and comprehensive if you are financing or leasing the car. If you own the car outright, you choose whether to buy them.

Key Takeaways

  • Liability insurance is required by law in every state, but the minimum coverage is often too low to protect your personal assets if you cause a serious accident.
  • If you have a loan or lease on your car, your lender will require collision and comprehensive coverage, which pay for damage to your own vehicle.
  • Uninsured motorist coverage protects you if someone without insurance hits you, and it is inexpensive relative to the risk.
  • If you own your car outright, you can skip collision and comprehensive, but doing so means you pay out of pocket for any damage to your vehicle.
  • Your state's minimum liability limits are a legal floor, not a financial safety net — higher limits cost little more and protect you far better.

Liability insurance: what it covers and why the minimum is risky

Liability insurance pays for injuries and property damage you cause to other people. It covers medical bills, lost wages, pain and suffering, and the cost to repair or replace the other person's vehicle or property. It does not cover your own injuries or damage to your own car — that is what collision and comprehensive are for.

The state minimum is the lowest amount the law allows you to carry. In most states it is $25,000 per person for bodily injury, $50,000 per accident for bodily injury, and $25,000 for property damage — written as 25/50/25. Some states are lower; a few are higher. If you cause an accident and the damages exceed your limit, the injured person can sue you for the rest, and a court can garnish your wages or place a lien on your home to collect.

A serious accident can easily exceed the state minimum. A single person's medical care, rehabilitation, and lost income from a major injury can reach $100,000 or more. If there are multiple people in the other car, the costs add up fast. Raising your liability limit to $100,000 per person and $300,000 per accident costs only $10 to $30 more per month in most places, depending on your age, driving record, and location.

Collision and comprehensive: protecting your own car

Collision insurance pays to repair or replace your car if you hit something — another car, a tree, a guardrail — or if another car hits you. Comprehensive insurance pays for damage from things other than collisions: theft, vandalism, weather, hitting an animal, or a falling object. Both have a deductible, which is the amount you pay out of pocket before insurance kicks in. Common deductibles are $500 or $1,000.

If you are financing or leasing your car, your lender requires both collision and comprehensive. They own a stake in the car and will not let you drive it without protection. If you own the car outright, you choose. The trade-off is simple: you pay a monthly premium for coverage, or you pay the full repair cost yourself if something happens. If your car is worth less than $5,000 or $6,000, the monthly premium for collision and comprehensive may cost more over time than the car is worth, so many owners skip it. If your car is newer or worth more, carrying collision and comprehensive usually makes financial sense.

The deductible you choose affects your monthly premium. A $1,000 deductible costs less per month than a $500 deductible, but you pay more out of pocket if you have a claim. Pick a deductible you can actually afford to pay if you need to — there is no point in saving $10 a month on premium if you cannot pay $1,000 when your car needs repair.

Uninsured and underinsured motorist coverage

Uninsured motorist coverage (UM) pays for your injuries and damage to your car if you are hit by someone who has no insurance. Underinsured motorist coverage (UIM) covers you if the other driver has insurance but their liability limit is too low to pay for all your damages. Together, they protect you from a gap that is not your fault.

About one in eight drivers on the road has no insurance, and many more have only the state minimum. If an uninsured driver hits you and you have no UM coverage, you have to sue them personally to recover anything — and most uninsured drivers have no money to collect. UM and UIM coverage is inexpensive, usually $5 to $15 per month, and it covers your medical bills, lost wages, and pain and suffering, just as if the other driver's liability insurance were paying.

Some states require UM coverage; others make it optional. Even if your state does not require it, carrying it is practical protection. It covers you, your passengers, and family members living in your household who are hit by an uninsured driver, whether they are in your car or in someone else's car.

Medical payments coverage and personal injury protection

Medical payments coverage (MedPay) pays your medical bills and your passengers' medical bills if anyone in your car is injured in an accident, regardless of who is at fault. It covers ambulance rides, emergency room visits, surgery, and follow-up care. It does not cover lost wages or pain and suffering — only actual medical expenses. Most policies offer $1,000 to $5,000 in MedPay coverage.

Personal injury protection (PIP) is similar but broader. It covers medical bills, lost wages, and sometimes other costs like childcare or household help if you are injured and cannot work. PIP is required in some states (called "no-fault" states) and optional in others. If your state requires it, it is usually bundled into your policy automatically.

MedPay is optional in most states and costs $5 to $15 per month. It is useful if you do not have health insurance or if your health insurance has a high deductible — MedPay pays first and can cover costs your health plan would not. If you have solid health insurance, MedPay is less critical, but it still covers your passengers' medical bills, which your health insurance does not.

How to decide what coverage to buy

Start with what your state requires and what your lender requires. Your state's minimum liability is a legal floor. Your lender's requirements (usually collision and comprehensive if you have a loan) are non-negotiable. From there, the decision depends on your financial situation and risk tolerance.

If you have significant assets — a home, savings, investments — raise your liability limit above the state minimum. A $100,000 per person / $300,000 per accident limit is a reasonable target for most people. If you have very little in savings and no home, the state minimum is less risky for you personally, though it is still not ideal.

For collision and comprehensive, the question is whether you can afford to replace or repair your car out of pocket. If you cannot, carry both. If you can, you can skip them, but understand the risk: one accident or theft could total your car, and you would have no recovery. If your car is worth less than your annual premium for collision and comprehensive combined, skipping them is often the right call.

Uninsured motorist coverage is worth carrying in almost every case — it is cheap and protects you from a real risk. Medical payments coverage is worth it if you lack health insurance or have a high deductible. Ask your insurance agent for a quote on different coverage levels so you can see the actual cost difference.

How coverage limits and deductibles affect your premium

Your monthly premium is built from several pieces: the coverage types you choose, the limits you set, your deductible, your age and driving record, your location, the car you drive, and how much you drive. You cannot control your age or past accidents, but you can control coverage, limits, and deductible.

Raising your liability limit from the state minimum to $100,000 per person usually costs $10 to $30 more per month. Raising it further to $250,000 or $300,000 per person costs a bit more, but the increase slows down — the jump from $25,000 to $100,000 is steeper than the jump from $100,000 to $300,000. Raising your deductible from $500 to $1,000 typically saves $10 to $20 per month. Dropping collision or comprehensive saves the most, but only if you own the car outright and can afford the risk.

Shop around. Rates vary significantly between insurers for the same coverage. Getting quotes from at least three companies takes an hour and can save you hundreds per year. Many insurers offer discounts for bundling home and auto insurance, for safety features on your car, for completing a defensive driving course, or for low mileage.

Frequently Asked Questions

Do I have to carry the state minimum liability insurance?

Yes, in every state. Driving without it is illegal and can result in fines, license suspension, and legal liability if you cause an accident. However, the state minimum is often too low to protect your personal assets — most financial advisors recommend carrying higher limits if you have anything to lose.

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

The injured person can sue you for the amount over your limit. A court can garnish your wages, place a lien on your home, or seize other assets to pay the judgment. This can continue for years. Carrying higher liability limits prevents this scenario.

Can I skip collision and comprehensive if I own my car outright?

Yes, it is legal. But if your car is damaged or stolen, you pay the full repair or replacement cost yourself. If your car is worth $10,000 and collision and comprehensive cost $100 per month, skipping them saves $1,200 per year — but one accident could cost you $10,000. The decision depends on whether you can afford that risk.

Is uninsured motorist coverage worth the cost?

Yes. It costs $5 to $15 per month in most places and protects you from a real risk — about one in eight drivers has no insurance. If an uninsured driver hits you and you have no UM coverage, you have to sue them personally, and most uninsured drivers have no money to collect.

What is the difference between collision and comprehensive?

Collision pays for damage when you hit something or another car hits you. Comprehensive pays for damage from theft, vandalism, weather, animals, or falling objects. If you have a loan or lease, your lender requires both. If you own the car, you choose whether to carry them.