Liability coverage is the part of an auto policy that exists for other people. It pays for the injuries and property damage you cause. It is also the part most commonly bought at the state minimum, by drivers who have never seen what a serious claim costs.

Reading the three numbers

Limits are usually written as three numbers, such as 25/50/25. In thousands of dollars, they mean:

  • $25,000 of bodily injury coverage per injured person
  • $50,000 of bodily injury coverage total, for all injured people in one accident
  • $25,000 for property damage in one accident

Some policies instead use a combined single limit, a single pool such as $500,000 that can be applied to bodily injury and property damage in any combination. A combined single limit is more flexible in a bad accident because it does not strand money in the wrong bucket.

What those numbers buy in the real world

The property damage figure is the easiest to test. The average price of a new vehicle is well above $45,000, and a moderately equipped three-year-old SUV commonly totals in the mid $30,000s. A $25,000 property damage limit does not total one modern vehicle, let alone a vehicle plus a guardrail plus a light pole.

Bodily injury is harder to intuit and much larger. A single ambulance ride, an emergency department visit, imaging, and a two-day admission clears $25,000 without a surgery. An orthopedic injury with surgery and rehabilitation runs well into six figures.

When a judgment exceeds your limits, the insurer pays up to the limit and defends you, and you are personally responsible for the rest. Depending on the state, that can mean wage garnishment, liens, and years of collection.

Uninsured and underinsured motorist coverage protects you

Liability protects other people from you. Uninsured and underinsured motorist coverage protects you from other people, and it is the coverage most often skipped. Roughly one in seven drivers nationally carries no insurance at all, and a much larger share carry state minimum limits that will not cover a serious injury.

Set your uninsured and underinsured limits equal to your liability limits. Carriers usually price this coverage modestly because the claims are less frequent, and it is what actually pays your medical bills and lost wages when the other driver has nothing.

What higher limits cost

This surprises people. Moving from 25/50 to 100/300 does not quadruple your premium. Most of the cost of a liability claim occurs in the first layer, so the additional layers are comparatively cheap. Depending on the state and the driver, going from state minimum to 100/300/100 commonly adds somewhere in the range of $15 to $40 a month, and going from 100/300 to 250/500 often adds less than that again.

Ask your carrier to quote your policy at three limit levels at once. Seeing the numbers side by side is usually the end of the argument.

Umbrella policies

A personal umbrella policy adds $1 million or more of liability coverage above your auto and homeowners limits, and it is one of the least expensive coverages sold. Carriers typically require underlying limits of 250/500 on auto and $300,000 on the home before they will write one, which means raising your auto limits can be a prerequisite rather than an alternative.

Umbrellas are worth pricing for anyone with equity in a home, retirement savings, a teenage driver, a pool, a dog, or a rental property. The premium is small precisely because the events are rare, and the exposure is the rest of your financial life.

A sensible target

For most households, a reasonable starting point is 100/300/100 with matching uninsured and underinsured motorist coverage, moving to 250/500/100 if there are assets to protect or a young driver in the house. Set the number by what you could lose, not by what the state will let you get away with. State minimums are a floor written into law decades ago and adjusted rarely. They were never a recommendation.