What Are Car Insurance Limits?

Car insurance limits determine how much coverage you'll receive. This article will help you get a better understanding of them.
Insurance agent writing policy

How much car insurance do I need? This is a common question asked by many. Before answering this question, you should understand car insurance limits. Learning more about insurance limits will help you know if you’re insured in the best way possible.

Going over your coverage limits can end up costing you hundreds or even thousands in some cases. If you can know how high to set your limits, you can be in a great position to save lots of money.

This article will help you learn more about auto insurance limits. We’ll go over:

  • What car insurance limits are
  • How much car insurance you should get
  • The difference between high and low limits
  • The basics of minimum state requirements
  • Comprehensive and collision insurance limits

What Are Car Insurance Limits?

Limits are the highest amount of money of coverage that your insurance company will provide you. If you exceed your limit, you must pay out of pocket for any costs you incur when filing a claim.

Every type of insurance you buy comes with a limit. However, many of the coverages that you get will come with different coverage limits. Below is a list of various types of car insurance coverages and some important information about them:

  • Collision coverage. This covers damages to your car if it’s involved in a collision with another vehicle or an object such as a tree. Collision insurance is optional. This is because it only covers the damages to your car.
  • Comprehensive coverage. Comprehensive insurance covers damages to your car out of your control such as theft or vandalism. Like collision insurance, comprehensive is optional.
  • Property damage liability (PDL). This pays for damages to other vehicles or property caused by your car. PDL is mandatory in 49 states, as well as in Washington D.C.
  • Bodily injury liability (BIL). This helps cover the medical costs of anyone involved in an accident where you’re at fault. BIL also applies if another person drives your car. Like PDL, BIL is mandatory in nearly every state.
  • Personal injury protection (PIP). This pays for any medical bills or lost wages for you and your passengers. PIP is a required coverage in “no-fault” states.
  • Uninsured/underinsured motorist coverage (UM/UIM). The Insurance Information Institute (III) describes this as a “frequently required coverage.” UM/UIM covers the costs of an accident caused by someone with either no insurance or very little insurance.

How Much Car Insurance Should You Buy?

The amount of car insurance you need depends on the limits you have on your coverage. You can choose to set your limits at your state’s bare minimum requirements, or you can set them much higher. Note that coverage requirements vary between states.

On your policy, you might see your limits written out in a shorthand form like this: “50/100/50.” Here’s a quick breakdown of how to read shorthand limits:

  • $50,000 for injuries to one person in an accident
  • $100,000 for injuries to everyone involved in an accident
  • $50,000 for any property damage in an accident

It’s a good idea to think about your circumstances before choosing your limits. You may think about things like where you live, how much you make, and more. The following is a rundown of high vs. low car insurance limits and how you may go about choosing them:

High Limits

As previously mentioned, how high you set your limits truly relies on your personal and financial situation. You may want to have high limits if:

  • You can afford to pay for higher limits. Most states have a minimum requirement for auto insurance. If you choose to have your limits higher than the minimum, you’ll more than likely pay more for your car insurance.
  • You live in a high-income city/town. The damages could be costly if you happen to be in an accident that involves expensive cars. Buying higher limits ensures that your insurance provider will pay for more of the damages than you.
  • You have a new car. You may want to get both comprehensive and collision coverages if you’ve recently purchased a new car. Having these will add more of a cost to your insurance, but they’ll protect your likely expensive new asset.

Low Limits

Having lower limits is a riskier choice than having higher limits. This is because you assume a lot more financial risk if you decide to have low auto insurance limits. For example, you could find yourself in an accident that causes damage to your vehicle, or bodily harm to passengers. A lower amount of car insurance in this situation means that you’d pay at least a chunk of any wages lost, repairs, injuries, and more.

While risky, lower limits still might be a better choice if:

  • You can afford to pay for some of the costs yourself. In an accident, you’ll have to pay any costs that your car insurance doesn’t cover. With lower limits, you must make sure you can cover those costs.
  • You live in a lower average income city/town. Car prices may be lower in cheaper areas. Therefore, accidents could be more affordable than in higher-income areas where there are likely more expensive cars.
  • You rarely get into accidents. Lower limits might save you money if you consider yourself a safe driver. Higher limits could add up on your monthly premium, especially if you hardly need to use your auto coverage.

Though there are situations where you might think about using lower limits, higher limits are safer. It all comes down to how much you can pay if something unexpected happens. Like with deductibles, it’s smart to look at your emergency fund and figure out how much you’re able to put up in an accident.

Minimum State Requirements

Every state, except New Hampshire and Virginia, requires drivers to have some level of liability coverage. And even though New Hampshire doesn’t require auto insurance by law, its Department of Safety “strongly recommends” it. Without car insurance, you might have to shell out lots of money if you get into a car crash.

You’ll find that each state sets unique requirements for limits. What you may see in one state won’t be what you could in another.

Comprehensive and Collision Limits

Typically, your limits for comprehensive or collision insurance are the same as your car’s actual cash value (ACV) when it’s in an accident. If your car is a total loss because of a collision or otherwise, your insurance policy would cover your vehicle’s value while taking depreciation into account.

The ACV is the cost to repair or replace your damaged vehicle minus the depreciation. The ACV is also the fair market value of your car or vehicle.

Bottom Line

If your damages go above your coverage limits, you’ll pay out of pocket to cover the remaining costs. For that reason, it’s important to know how much you’re willing to pay in an emergency. As mentioned, almost every state has a limits requirement for car insurance. If you’re meeting those requirements, you have free rein to set your limits as low or as high as you want.

When you choose how much car insurance to get, you should consider many important details such as your city, finances, and safety as a driver. And remember to compare quotes when shopping for insurance to get the lowest rate.

Frequently Asked Questions

Q: What’s the definition of limits in car insurance?

A: In auto insurance, limits are the greatest amount of coverage in dollars that your insurance company will provide you.

Q: Do I need limits for my car insurance?

A: Yes, auto insurance has limits. The only question is, how high or low you want your limits and how much you want to pay.

Q: How much car insurance do I need to get?

A: Deciding how much car insurance to get is a personal choice that requires you to look at your circumstances. It’s always better to have higher limits if you can afford them. Be sure you meet your state’s minimum requirements when choosing your limits.

Q: What happens if my damages exceed my limits?

A: If damages exceed limits, you’ll pay for any remaining costs out of pocket. Keep this in mind when you decide on limits.

Q: How much car insurance is required?

A: Every state has its own minimum car insurance requirements, including limits.

Q: What are the limits for collision and comprehensive insurance?

A: Limits for your comprehensive or collision insurance will usually be the same as your car’s actual cash value.


Related Articles: