The insurance industry wants you confused. Here's a clear framework for choosing the right coverage.
The Coverage Confusion Problem
When you buy car insurance, you're bombarded with options:
- Liability limits (25/50? 100/300? 250/500?)
- Collision vs. comprehensive
- Uninsured motorist
- Medical payments vs. PIP
- GAP coverage
- Rental reimbursement
- Dozens of add-ons
Most people either:
- Under-insure to save money (risky)
- Over-insure because an agent suggested it (expensive)
- Accept the default without understanding it (both)
This guide helps you choose intentionally.
The Six Types of Car Insurance Coverage
1. Liability Insurance (Required)
What it covers: Damage you cause to others—their car, their medical bills, their property.
What it doesn't cover: Your own car or injuries.
How it's written: 100/300/100 means:
- $100,000 per person for bodily injury
- $300,000 total per accident for bodily injury
- $100,000 for property damage
Minimums vary by state:
| State Example | Minimum Required |
|---|---|
| California | 15/30/5 |
| Texas | 30/60/25 |
| New York | 25/50/10 |
| Florida | 10/20/10 (property only) |
The problem with minimums: They're dangerously low. A serious accident can easily exceed $100,000 in medical bills alone.
Recommended: At least 100/300/100. If you have assets to protect, consider 250/500/250.
2. Collision Coverage (Optional)
What it covers: Damage to your car when you hit something (another car, a tree, a guardrail).
What it doesn't cover: Damage from non-collision events (theft, weather, animals).
Deductible: You choose ($250, $500, $1,000). Higher deductible = lower premium.
When you need it:
- Newer or more valuable car
- Financed/leased vehicle (lender requires it)
- You can't afford to replace the car out of pocket
When you can skip it:
- Car's value is less than 10x the annual collision premium
- You have savings to replace the car
- Car is paid off and not worth much
The math:
- Car value: $5,000
- Collision premium: $600/year
- $5,000 ÷ $600 = 8.3 years to pay the car's value in premiums
- Consider dropping coverage
3. Comprehensive Coverage (Optional)
What it covers: Damage to your car from non-collision events:
- Theft
- Vandalism
- Weather (hail, flood, falling trees)
- Fire
- Animal collisions (hitting a deer)
- Falling objects
What it doesn't cover: Mechanical breakdowns, normal wear and tear.
Deductible: Typically $250-$1,000.
When you need it:
- Newer or valuable car
- Live in area with theft/break-ins
- Weather risks (hail-prone regions)
- Financed/leased (required by lender)
Often overlooked: Comprehensive is usually cheap ($100-$300/year) even when collision is expensive. Many people drop collision but keep comprehensive.
4. Uninsured/Underinsured Motorist (UM/UIM)
What it covers: Your injuries and car damage when the at-fault driver:
- Has no insurance
- Has insurance but not enough to cover your losses
- Hits and runs
Why it matters:
- ~13% of drivers are uninsured nationally
- In some states, it's over 20%
- Many insured drivers carry only state minimums
Recommended: Match your liability limits. If you have 100/300 liability, get 100/300 UM/UIM.
Required in: Some states mandate UM/UIM. Others make it optional.
5. Medical Payments / Personal Injury Protection (PIP)
Medical Payments (MedPay):
- Covers medical bills for you and passengers
- Regardless of fault
- Usually $1,000-$10,000 limits
- Works alongside health insurance
Personal Injury Protection (PIP):
- Required in no-fault states
- Covers medical bills, lost wages, essential services
- Higher limits than MedPay
- Pays regardless of fault
When it helps:
- High deductible health plan
- Want immediate coverage without fault determination
- Covering passengers who may not have health insurance
Tip: If you have good health insurance, MedPay can be minimal. If you have poor or no health insurance, higher PIP/MedPay is valuable.
6. Add-On Coverages
Rental Reimbursement:
- Pays for a rental car while yours is being repaired
- Usually $30-$50/day for 30 days max
- Costs ~$30-$60/year
Worth it if you can't go without a car.
Roadside Assistance:
- Towing, jump starts, flat tire help, lockout service
- Costs ~$10-$30/year
Skip if you have AAA or roadside through your car manufacturer.
GAP Insurance:
- Covers the "gap" between what you owe and what your car is worth
- Critical if you're underwater on your loan
- Usually needed first 2-3 years of ownership
Essential if you put less than 20% down or have a 72+ month loan.
The Coverage Framework
Determine Your Risk Tolerance
Conservative (maximum protection):
- High liability (250/500 or more)
- Full collision and comprehensive
- UM/UIM matching liability
- MedPay/PIP
- All add-ons
Moderate (balanced):
- Solid liability (100/300)
- Collision and comprehensive with $500-$1,000 deductible
- UM/UIM matching liability
- Minimal MedPay
- Rental coverage only
Aggressive (minimize cost):
- Higher liability (still protect assets)
- Drop collision on older cars
- Keep comprehensive (cheap protection)
- UM/UIM at lower levels
- Skip most add-ons
The Asset Protection Rule
If someone sues you after an accident, what can they take?
| Your Net Worth | Recommended Liability |
|---|---|
| < $50,000 | State minimum to 50/100 |
| $50,000-$150,000 | 100/300/100 |
| $150,000-$500,000 | 250/500/250 |
| $500,000+ | 250/500 + umbrella policy |
Umbrella insurance adds $1-5 million in liability protection for ~$200-$500/year. Very cost-effective for high-net-worth individuals.
The Car Value Rule
When to carry collision/comprehensive:
| Car Value | Deductible + Annual Premium | Keep Coverage? |
|---|---|---|
| $25,000+ | Any | Yes |
| $15,000-$25,000 | < $1,500 | Yes |
| $8,000-$15,000 | < $1,000 | Maybe |
| < $8,000 | < $500 | Probably drop |
| < $4,000 | Any | Drop it |
The 10x rule: If your car is worth less than 10x your annual collision premium, consider dropping collision.
How to Lower Your Premium Without Sacrificing Coverage
Raise Your Deductible
| Deductible Change | Typical Premium Reduction |
|---|---|
| $250 → $500 | 15-30% |
| $500 → $1,000 | 15-30% |
| $1,000 → $2,000 | 10-20% |
Only do this if you can afford to pay the deductible after an accident.
Bundle Policies
Combining home/renters + auto typically saves 5-25%.
Ask About Discounts
| Discount Type | Typical Savings |
|---|---|
| Good driver | 10-25% |
| Multi-car | 10-25% |
| Good student | 5-15% |
| Defensive driving course | 5-15% |
| Low mileage | 5-15% |
| Pay in full | 5-10% |
| Paperless/autopay | 3-10% |
| Anti-theft device | 2-10% |
| Professional/alumni | Varies |
Shop Around (Seriously)
Rates vary dramatically between companies—sometimes by 50-100% for the same coverage.
Best practice: Get quotes from 5-7 companies every 1-2 years:
- Your current insurer
- Big nationals (GEICO, Progressive, State Farm, Allstate)
- Regional insurers in your area
- At least one direct writer (USAA if eligible, Lemonade)
Consider Telematics
Usage-based insurance tracks your driving:
- Progressive Snapshot
- Allstate Drivewise
- State Farm Drive Safe & Save
Good drivers can save 10-30%. Bad drivers may pay more.
State-by-State Considerations
No-Fault States
In no-fault states, your own insurance pays your medical bills regardless of fault:
- Florida, Michigan, New York, New Jersey, Pennsylvania, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota, Utah
You need: PIP coverage (required) You may not need: As much MedPay
Tort States
In most states (tort states), the at-fault driver's insurance pays:
- More reason to carry higher UM/UIM (protection from uninsured at-fault drivers)
High Uninsured Driver States
| State | Uninsured Rate |
|---|---|
| Mississippi | 29% |
| New Mexico | 26% |
| Michigan | 25% |
| Tennessee | 23% |
| California | 22% |
In these states, prioritize UM/UIM coverage.
When to Review Your Coverage
Life changes trigger coverage needs:
| Event | Coverage Consideration |
|---|---|
| Bought new car | Add collision/comprehensive |
| Paid off loan | Consider dropping collision |
| Car now 5+ years old | Evaluate collision value |
| Moved | Rates change by location |
| Married | Multi-car discount |
| New teen driver | Shop around |
| Retired/work from home | Low-mileage discount |
| Increased income/assets | Raise liability limits |
At minimum, review annually.
The Coverage Cheat Sheet
For Most People
| Coverage | Recommended |
|---|---|
| Liability | 100/300/100 minimum |
| Collision | Yes if car worth $8,000+ |
| Comprehensive | Yes (usually cheap) |
| UM/UIM | Match liability |
| MedPay | $5,000-$10,000 |
| Rental | Yes if no backup car |
| Roadside | Only if no AAA/manufacturer coverage |
| GAP | Yes if underwater on loan |
For High Net Worth
| Coverage | Recommended |
|---|---|
| Liability | 250/500/250+ |
| Umbrella | $1-2 million |
| Everything else | Full coverage |
For Older/Low-Value Cars
| Coverage | Recommended |
|---|---|
| Liability | 100/300/100 |
| Collision | Drop if car < $4,000 |
| Comprehensive | Keep (cheap protection) |
| UM/UIM | Match liability |
| MedPay | Depends on health insurance |
The Bottom Line
Insurance isn't one-size-fits-all. The right coverage depends on:
- What you're driving - Newer/valuable = more coverage
- What you own - More assets = higher liability
- Where you live - High uninsured rates = more UM/UIM
- Your health insurance - Gaps = more MedPay/PIP
- Your risk tolerance - Conservative vs. cost-conscious
The goal isn't the cheapest insurance—it's the right insurance at a fair price.
Compare coverage options and get personalized recommendations with our insurance analyzer.
Related Articles:
- When to Switch Car Insurance (And When to Stay)
- Car Insurance for New Drivers: A Parent's Guide
- Understanding Your Insurance Declaration Page
Last updated: January 2025
