How to Calculate the Right Amount of Car Insurance Coverage

Liability Coverage: Your Net Worth Is the Floor

Your bodily injury liability limit should equal your total net worth at minimum. This is the number an injured plaintiff's attorney will target in a lawsuit after an at-fault accident.

Every state sets a minimum bodily injury liability requirement. California's is $15,000 per person and $30,000 per accident. Texas requires $30,000 per person and $60,000 per accident. Neither number comes close to covering a multi-day hospital stay, lost wages, or pain-and-suffering damages in a serious collision.

Worked Example: The Liability Gap

A driver with a $320,000 net worth carries the Texas state minimum of $30,000/$60,000 in bodily injury liability coverage. An at-fault collision sends two occupants of the other vehicle to the hospital. Total damages are assessed at $190,000. The policy pays $60,000. The remaining $130,000 becomes a civil judgment against the driver's personal assets. Savings accounts, brokerage accounts, and home equity are all reachable depending on state exemption laws.

The correct coverage for that driver: at least $300,000 per occurrence in bodily injury liability, plus a $1,000,000 personal umbrella policy from a carrier such as Chubb, Travelers, or USAA. Combined annual cost for both is typically $900 to $1,400, depending on driving record and state.

Property Damage Liability

Property damage liability covers the other driver's vehicle and any fixed property you hit. A new midsize truck has a manufacturer's suggested retail price above $52,000. State minimums for property damage range from $5,000 to $25,000. Carry at least $100,000 in property damage liability. The incremental premium cost above state minimums is usually under $120 per year.

Collision and Comprehensive: Run the Break-Even Math

Collision and comprehensive coverage are only worth carrying if the annual premium cost does not exceed the expected payout discounted by the probability of a claim.

The standard framework: divide the vehicle's current actual cash value by the annual combined premium for collision and comprehensive, minus the deductible. If that ratio falls below 10, dropping the coverage deserves serious consideration.

Worked Example: Older Vehicle Coverage Decision

A 2017 Honda CR-V has a current actual cash value of $14,200 per Kelley Blue Book. Collision and comprehensive premiums total $1,080 per year. The deductible is $500. The net maximum payout from a total-loss claim is $14,200 minus $500, or $13,700.

Ratio: $13,700 / $1,080 = 12.7. That is above 10. Keeping coverage is defensible.

Now recalculate at age eight. The same vehicle is worth $8,400. Premium cost has not changed materially. Net maximum payout: $7,900. Ratio: $7,900 / $1,080 = 7.3. Dropping collision is now the better financial decision for a driver with $8,400 in liquid savings to self-insure.

Choosing the Right Deductible

A higher deductible lowers your annual premium but increases your out-of-pocket cost after a claim. The math is simple: divide the annual premium savings by the additional deductible amount to find your break-even claim frequency.

Moving from a $500 to a $1,000 deductible on a typical sedan saves $180 to $240 per year in most states. The additional out-of-pocket exposure is $500. Break-even: $500 / $210 (midpoint savings) = 2.4 years. If you expect to file fewer than one collision claim every 2.4 years, take the $1,000 deductible. The national average driver files a collision claim once every 17.9 years, according to the National Association of Insurance Commissioners.

Uninsured and Underinsured Motorist Coverage

Roughly 1 in 8 drivers on U.S. roads carries no insurance, according to the Insurance Research Council's 2023 study. In states like Mississippi, that figure reaches 1 in 4.

Uninsured motorist bodily injury (UMBI) coverage pays your medical bills when the at-fault driver carries no policy. Underinsured motorist bodily injury (UIMBI) coverage pays the gap when the at-fault driver's policy is too small to cover your damages.

Match your UMBI and UIMBI limits to your bodily injury liability limits. If you carry $250,000/$500,000 in liability, carry $250,000/$500,000 in UM/UIM. The additional annual premium is typically $80 to $160. This is one of the most cost-efficient coverages available.

Medical Payments and Personal Injury Protection

Medical Payments (MedPay) and Personal Injury Protection (PIP) cover your own medical costs regardless of fault. PIP is mandatory in no-fault states including Florida, Michigan, and New York.

If you carry a health insurance policy with a low deductible, such as a plan with a $500 individual deductible and a broad network, you can minimize MedPay to the state minimum or a modest $5,000 limit. If your health insurance carries a high-deductible structure, specifically a deductible above $3,000, carry at least $10,000 in MedPay to bridge the gap between an accident and your health policy's coverage kick-in.

Building the Complete Coverage Stack

A driver with a $450,000 net worth, a five-year-old vehicle worth $22,000, and a high-deductible health plan should hold this coverage stack:

• Bodily injury liability: $250,000 per person / $500,000 per occurrence
• Property damage liability: $100,000
• Uninsured/underinsured motorist bodily injury: $250,000 per person / $500,000 per occurrence
• Collision: yes, with a $1,000 deductible
• Comprehensive: yes, with a $1,000 deductible
• MedPay: $10,000
• Personal umbrella policy: $1,000,000

Total estimated annual premium range: $1,800 to $2,600 depending on state, driving record, and carrier. That premium protects $450,000 in assets against a liability event that could otherwise wipe out the entire balance sheet.

Use the CalcMoney Calculator to Pressure-Test Your Numbers

Every variable in the coverage decision changes with your net worth, vehicle age, health insurance structure, and state. A coverage stack that was correct three years ago may be underweight today if your investment accounts have grown or your vehicle has depreciated past the break-even threshold.

The CalcMoney calculator lets you input your current net worth, vehicle value, deductible, and annual premium to produce a coverage recommendation specific to your situation. Run your numbers before your next renewal date. Policy changes take effect immediately with most carriers, and the premium adjustment is often less than $200 per year to close a six-figure protection gap.

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.