Car Insurance Coverage Decisions: How to Choose Your Limits and Deductibles

1. Liability

Liability coverage pays for the bodily injury and property damage you cause to other people. It is mandatory in nearly every US state. It is expressed as three numbers, commonly written as 100/300/100:

• $100,000: bodily injury per person you injure
• $300,000: total bodily injury per accident across all parties
• $100,000: property damage per accident

State minimums vary widely. Florida sets liability minimums at 10/20/10. California is 15/30/5. Most states sit between these and 50/100/25. The III and NAIC both note that state minimums were last meaningfully adjusted decades ago and rarely keep pace with medical-cost or vehicle-repair inflation. A serious injury claim can exhaust a $25,000 per-person bodily-injury limit before the first hospital invoice clears. Above that limit, you are personally on the hook for the difference.

The assets-at-risk rule: if you have a house, retirement accounts, or significant future earnings, the gap between your liability limits and a serious-claim total is what your other assets cover. This is why both the III and NAIC consumer guides recommend liability limits well above state minimum for any household with meaningful net worth. 100/300/100 is the most-cited “sensible baseline” in consumer literature.

2. Uninsured and underinsured motorist (UM / UIM)

UM/UIM covers you and your passengers when the at-fault driver has no insurance (UM) or insufficient insurance to cover your damages (UIM). The III estimates roughly one in eight US drivers is uninsured nationally, with several states above 20 percent. UM/UIM is the coverage that matters disproportionately in those states.

The default recommendation is to match your UM/UIM limits to your liability limits. If you are carrying 100/300/100 liability, carry 100/300/100 UM/UIM. Some carriers offer combined-single-limit (CSL) UM/UIM at $300,000 or $500,000 as an alternative structure, which can be slightly more cost-effective per dollar of coverage. UM/UIM premiums are usually a small fraction of liability premiums (often $50 to $150 annually for the matched limits), so matching up is usually inexpensive.

Some states allow you to reject UM/UIM in writing. Do not. The cost is low. The scenario it covers (a serious accident with an uninsured at-fault driver) is exactly the case where your other assets are most at risk.

3. Comprehensive vs collision

Both cover damage to your own vehicle, which is why they are usually paired. The distinction:

• Comprehensive covers theft, vandalism, fire, hail, falling objects, animal collisions (deer strikes), glass damage, and weather events. Sometimes called “other than collision.”
• Collision covers damage to your vehicle from a crash, regardless of fault. Includes hitting another vehicle, hitting a stationary object, or rolling.

On a financed or leased vehicle, the lender almost always requires both. Once you own the vehicle outright, the question becomes whether the coverage is still worth its premium given the vehicle's declining actual cash value (ACV).

The 10-percent rule: if the annual premium for comprehensive plus collision exceeds 10 percent of the vehicle's ACV, you are at the threshold where self-insuring (dropping coverage and accepting the risk of a total loss) starts to make economic sense. A $4,000 vehicle with a $500 annual comp-plus-coll premium is at 12.5 percent. The math says drop. The override on the math is whether you could replace the vehicle out-of-pocket if it were totalled tomorrow. If not, keep the coverage despite the unfavourable economics.

You can drop one without dropping the other. Comprehensive is usually the cheaper of the two and covers the more random risks (theft, hail, deer). Many drivers keep comprehensive on older vehicles after dropping collision.

4. Deductibles

Comprehensive and collision both carry deductibles. The deductible is what you pay out-of-pocket before the insurer pays the rest of a covered claim. The deductible choice is a direct lever on premium: higher deductible, lower premium, more self-funded risk per claim.

The savings curve is typically:

• $250 to $500: roughly 7 to 12 percent reduction in the affected coverages
• $500 to $1,000: typically 15 to 30 percent reduction
• $1,000 to $2,500: typically a further 8 to 15 percent reduction (less per additional dollar of risk)

The simple decision rule: pick the highest deductible you could pay tomorrow without disrupting essential bills. For most households this is $500 or $1,000. Going to $2,500 saves modestly and exposes you to risk you may not want to absorb. Going to $250 means you are paying meaningful premium for a small claim you might never file.

You can mix deductibles between comprehensive and collision. A common pattern: $500 comprehensive, $1,000 collision (collision claims tend to be larger and the higher deductible saves more). Some carriers have a “disappearing deductible” benefit where the deductible decreases over claim-free renewal cycles. Worth asking about.

5. Medical: PIP vs MedPay

Medical coverage on auto policies works differently depending on whether your state is a no-fault state or an at-fault state.

No-fault states (Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah) require PIP (Personal Injury Protection). PIP pays medical expenses, lost wages, and sometimes other accident-related costs (childcare, rehabilitation) regardless of who was at fault. PIP minimum limits vary by state from $5,000 (lowest) to unlimited (Michigan, until recent reforms). Drivers in no-fault states do not have a choice about PIP, only about the limit.

At-fault states typically offer MedPay (Medical Payments) as an optional coverage. MedPay covers medical expenses only, regardless of fault, with smaller limits ($1,000 to $25,000 typical). MedPay is commonly used as a supplement to health insurance: it covers deductibles, copays, and out-of-network costs after an accident.

If you have strong health insurance, MedPay is somewhat duplicative and you might decline it. If you have a high-deductible health plan, MedPay at $5,000 to $10,000 is genuinely useful and inexpensive (often $5 to $15 per month). The decision is personal and depends on your health-insurance structure.

6. Optional coverages

Rental reimbursement

Pays for a rental car while yours is in the shop after a covered loss. Limits are typically $30, $50, or $75 per day, with a maximum total ($900 to $1,500). Cost is usually a few dollars per month. Worth it for households with one vehicle and no obvious backup. Less essential for two-vehicle households.

Roadside assistance

Tow, jump-start, lock-out, flat-tire change, fuel delivery. Often $1 to $4 per month per vehicle. The decision rule: do you already have AAA, a credit-card roadside benefit (some Visa Signature and Amex Platinum cards include it), or manufacturer-included roadside (most new vehicles ship with three to five years of it)? If yes, decline. If no, the carrier roadside coverage is fine but not unique.

Gap coverage

Pays the gap between actual cash value and remaining loan balance after a total loss. Only relevant if you are leasing or financing and currently owe more than the vehicle is worth (negative equity, common in early years of a long-term loan). Many dealerships sell gap coverage at the loan signing, often at a markup. Most insurers offer gap as a policy add-on at a meaningfully lower price. If you need it, get it from your insurer. If you have positive equity in the vehicle, decline.

New-car replacement

Replaces a totalled new vehicle (typically less than two model years old) with a brand-new equivalent rather than paying ACV. Useful in the first year of ownership of a new vehicle, when ACV depreciation is steepest. Decline once the vehicle is past warranty.

Putting it together

A reasonable starting spec for a typical US household: 100/300/100 liability, matching UM/UIM, $500 comprehensive deductible, $1,000 collision deductible, MedPay $5,000 (or PIP-required minimum in no-fault states), rental reimbursement at $50/day, roadside as-needed, gap only if you owe more than the car is worth, no new-car replacement after year one.

Once you have written that spec down, every quote you collect should use it identically. Open the spec builder to print a worksheet, or read the four-quote methodto put the spec into practice.

Connected pages

• Coverage spec builder: the printable worksheet to take to quote calls.
• How to compare: the four-quote method.
• Why quotes differ: the rating-factor math behind premium variation.