How much auto insurance do you actually need?

Auto insurance has many coverages, but the right amount comes down to answering two questions:

1. If I cause a serious accident, how much liability protection do I need?
2. If my own car is damaged or stolen, do I need the carrier to pay to fix/replace it?

The first question is about liability. The second is about collision + comprehensive. Everything else (medical payments, uninsured motorist, rental reimbursement) is secondary.

Liability coverage pays for damages and injuries you cause to other people. Most states require minimum liability — but state minimums are dangerously low. Many states require 25/50/25 (25k per person bodily injury / 50k per accident / 25k property damage). A serious accident can produce damages in the hundreds of thousands or millions.

The modern baseline: 100/300/100 (100k per person, 300k per accident, 100k property damage). This costs only marginally more than state minimums and provides meaningful protection.

The better answer for higher-net-worth households: 250/500/100 plus a $1M+ umbrella policy. Umbrella insurance is cheap — typically $200-$400/year for $1M of additional liability — and protects your assets if a judgment exceeds your underlying limits.

Rule of thumb: carry liability limits at least equal to your net worth. If you have $400K in home equity + $200K in retirement + $50K in savings, you need at least $650K of coverage. Round up to $1M with umbrella.

Collision pays for damage to your vehicle in a crash. Comprehensive pays for non-crash damage — theft, vandalism, weather, animal strikes.

The 10% rule: drop collision + comprehensive when your annual premium for both exceeds 10% of your vehicle's value. On a 12-year-old car worth $4,000, paying $500/year for collision and comprehensive doesn't make financial sense.

Conversely: any car worth more than ~$3,000 generally warrants full coverage. Any financed or leased car requires it (lenders mandate it).

Uninsured/underinsured motorist (UM/UIM): protects you if the at-fault driver is uninsured or underinsured. Roughly 1 in 8 drivers nationally is uninsured. UM/UIM is cheap and essential — typically match your liability limits.

Personal injury protection (PIP) / Medical payments: covers your medical bills regardless of fault. Required in some states (no-fault states); optional in others. If your health insurance is good, the value is limited; if your health coverage is high-deductible, PIP/MedPay is more useful.

Rental reimbursement: $30-60/year for rental car coverage while yours is being repaired. Worth it if you don't have a backup vehicle.

Gap insurance: only if you financed with less than 20% down or are upside-down on a lease. Buy from your insurer, not the dealer — dealer gap is typically 5-10x more expensive.

Roadside assistance: often $10-20/year. If you have AAA or coverage through your credit card, skip it.

A 38-year-old in Texas with a $300K home, $200K in retirement, two vehicles worth $25K and $14K, a teen driver, and good credit:

• Liability: 250/500/100 (modest premium bump from 100/300/100, much better protection)
• Uninsured motorist: 250/500 to match liability
• Collision + Comprehensive: on both vehicles (both worth more than $3K, both are still depreciating assets)
• Deductibles: $1,000 each (cuts premium ~12% vs $500, manageable out-of-pocket)
• PIP/MedPay: minimum or skip — household has good health insurance
• Umbrella: $1M policy (~$300/year, protects net worth + future income from teen driver liability)
• Gap insurance: skip — both cars owned outright

Total annual cost: roughly $2,800-$3,400/year depending on carrier. Coverage strong enough to handle a worst-case accident; no money wasted on coverages that don't fit.