Why Your Car Insurance Coverage Limits Are Too Low
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When you signed up for your car insurance policy, you probably asked various questions about what expenses the policy would cover. You also likely paid close attention to your premiums, and you may have considered how easily you could pay the deductible if you needed to file a claim. But how closely did you look at your policy limits?
Car insurance limits play a key role in which expenses a policy will cover after an accident and how much they’ll pay. Overlooking these limits can be an expensive mistake because you don’t want to discover that your limits were too low once you’ve been in an accident because by then it’s too late.
Why Your Car Insurance Limits Are Too Low
Car insurance provides you with peace of mind, knowing that you’re protected in case you’re ever in an accident. But did you know if you don’t have enough insurance, you could still be responsible for expenses resulting from an accident? It’s always a good idea to carefully examine your car insurance policy, especially since many drivers have limits that are too low to truly protect them.
How Much Car Insurance Do I Need?
There’s no precise formula that will allow you to calculate exactly how much car insurance you need. Determining how much insurance is right for you is more of a personal choice, but it’s important to weigh several factors.
First, consider how expensive a simple accident can become. If you are at fault for an accident, you will usually be responsible for all of the expenses that result. That includes not only yours, but also those the other driver and any passengers sustain.
Those expenses can include medical bills, vehicle repairs and even legal fees. Depending on an accident’s severity, resulting expenses could be tens or even hundreds of thousands of dollars.
That’s why car insurance is so helpful. Your insurance helps to pay for these expenses, minimizing or even eliminating what you are responsible for paying out of pocket. But just how much they’ll pay will depend on the type of coverage you have and your policy limits.
When deciding how much insurance you need, you will need to consider several factors, including your financial savings, your state’s minimum insurance requirements, and just how much risk you’re comfortable assuming whenever you are on the road.
How Car Insurance Policy Limits Work
When you sign up for a car insurance policy, that policy will have specified limits. Those limits indicate the maximum amount of money that your policy will pay on a single claim, like a car accident.
Liability policies have limits that are often displayed like in a set of 3 numbers like 25/50/25. This stands for $25,000/$50,000/$25,000.
In this case, the policy would cover up to
- $25,000 in bodily injury expenses per person
- $50,000 in bodily injury per accident
- $25,000 in property damage per accident.
Any remaining expenses would be your responsibility.
Uninsured and underinsured motorist limits are also often displayed in the same way, with specified limits for bodily injury expenses per person, for bodily injury expenses per accident and for property damage expenses per accident.
It’s important to choose a policy with limits that are high enough to truly protect you if you’re in an accident.
For example, let’s say you have a 25/50/25 policy like the one outlined above.
If you are in an accident that results in two people each sustaining medical expenses totaling $40,000. You’re automatically left responsible for $15,000 in damages because your policy only covers $25,000.
If you couldn’t pay for those expenses, the other people involved could take you to court, meaning you would also have to pay for legal fees. Lower policy limits make car insurance more affordable, but the increased risk you take on with these policies doesn’t always pay off.
How Much Car Insurance is Required by State?
States have minimum car insurance requirements that you need to meet to be able to register and drive your vehicle. These requirements vary by state, with some state minimums being significantly higher than others.
States specify not only the type of insurance you need, but also the minimum policy limits that each type of insurance must have. States require you have insurance that meets these minimum limits to help ensure both your expenses and others’ expenses are paid for after an accident.
Those required minimum policy limits can vary significantly depending on where you live. California has some of the lowest minimums, requiring just $15,000 in bodily injury liability per person, $30,000 in bodily injury liability per accident, and $5,000 in property damage liability per accident.
The minimum requirements in a state like Alaska are much higher. Alaska requires drivers to have a minimum of $50,000 in bodily injury liability per person, $100,000 in bodily injury liability per accident, and $25,000 in property damage liability per accident.
If you’re uncertain of your current limits, you can log into your online account through your car insurance company or call the company to speak with a representative.
Once looking at your limits if you find you’d like to increase them, be sure to compare rates with various insurance companies to see which one can offer you the best rate.
Use our auto insurance comparison tool to help you compare quotes from up to 65 top insurance companies in a matter of minutes.
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What Type of Car Insurance is Required by State?
It’s also important to keep in mind that states may require you to have different types of coverage. Most states require a combination of:
- Bodily injury liability: Bodily injury liability coverage pays for expenses that other people experience as a result of an accident you have caused. These expenses could include costs related to hospital visits, lab work, physical therapy and more.
- Property damage liability: Property damage liability coverage pay for property damage resulting from an accident you caused. These can include vehicle repair and replacement costs, as well as damage to other physical property like a fence or house.
- Uninsured and underinsured motorist coverage: Uninsured motorist coverage pays for expenses that were caused by a driver who was uninsured, or involved in a hit and run accident. Underinsured motorist coverage helps to cover any remaining expenses you have after another driver’s insurance has paid out the policy limits. These types of insurance help to ensure you aren’t left with unpaid expenses from an accident that wasn’t your fault.
- Personal injury protection or no-fault insurance: Personal injury protection and no-fault insurance will help to cover your medical bills regardless of who was at fault for the accident. This type of coverage may also pay for lost wages and other expenses, like childcare or household help if you’re unable to carry out those tasks.
States like Alabama and Alaska require liability insurance, but some states like Connecticut require not only liability coverage, but also uninsured and underinsured motorist coverage. Delaware is even stricter, requiring liability coverage, uninsured and underinsured motorist coverage, and personal injury protection.
Just because a state doesn’t require you to have all four types of insurance coverage doesn’t mean that you don’t need them. These four types of coverage help to protect you in different scenarios, and they could mean the difference between your being financially responsible for expenses and you not having to worry about them.
Are State Minimum Insurance Requirements Enough?
While state minimum insurance requirements indicate the amount of insurance you need to be able to drive legally, you can take out a policy with much higher limits. It’s very possible that an accident’s expenses will exceed those minimum limits, especially if a person is seriously injured or multiple vehicles are involved.
While minimum insurance requirements are enough to drive legally in your state, you will need to decide if you think they are enough coverage for you. If you’re in a state with higher minimums, you might decide that the coverage is enough for you to feel comfortable. In states with lower minimums, it’s a good idea to get more coverage.
How to Save on Car Insurance Without Sacrificing Coverage
It’s best to buy as much car insurance coverage as you can afford, and there are several ways to do that affordably.
Increase Your Deductible
If you want to increase your policy limits without paying higher premiums, you might consider increasing your deductible. With a higher deductible, you can keep your premium down, but you need to be prepared to pay the large deductible out of pocket after an accident before your insurance will pay for expenses.
Get a Discount
You can also explore any discounts you might be eligible for. Car insurance companies offer various discounts, so you might save money by signing up for paperless billing, paying your premium in an annual lump sum, or even by taking a driver safety course.
If you have multiple vehicles, you could be eligible for a multi-vehicle discount when you insure them with the same company. And if you have other types of insurance like homeowner’s or renter’s insurance, you could qualify for multi-policy discounts if you use the same company for those policies and your car insurance.
But most importantly, you will need to shop around and compare quotes. You might find that by changing to another car insurance company, you can increase your policy limits while keeping your premium the same or just paying a bit more.
Using Compare.com’s auto insurance comparison tool can help you quickly and easily gather these quotes and see what you would pay for more coverage at another company.
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FAQs About Car Insurance Coverage Limits
What are coverage limits in insurance?
Coverage limits designate the maximum amount of money a car insurance company will pay for a certain type of expense resulting from a single accident. Even if expenses remain after those limits are paid, an insurer will not pay out additional money, and if you were at fault for the accident, you could be financially responsible for those expenses.
Is car insurance required in all states?
All states require you carry car insurance, but New Hampshire and Virginia give you the option to opt out. You will need to pay an annual fee to opt out and to legally drive without insurance in those states. If you drive uninsured and are at fault for an accident, you could be responsible for all of the resulting expenses, including medical bills and property damage.
What does 100/300/50 represent on an insurance policy?
The 100/300/50 represents the limits of a car insurance policy. A liability policy with a 100/300/50 limit would cover up to $100,000 in bodily injury expenses per person, $300,000 in bodily injury expenses per accident, and $50,000 in property damage.
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