There are two factors determining the “proper” liability limits for your Auto Insurance policy. Firstly, you have to comply with governmental regulations. And secondly, you have to make sure that your assets are protected in the event of a loss. Every state has a minimum requirement for liability coverage, which is usually written using three numbers, for example, 25/50/10. Liability coverage will pay for bodily injury and property damage to the other driver, their passengers, and their vehicle.

In the example, the numbers 25/50/10 represent $25,000 in coverage for bodily injury to a single person, $50,000 in coverage for bodily injury to all occupants, and $10,000 in coverage for property damage to the other vehicle, respectively. To determine the minimum limits in your state, you can visit the website of your local DMV, contact your insurance provider, or speak to a licensed independent insurance agent.

Often, the minimum coverage required by the state is not sufficient after an accident. To determine how much insurance coverage you should have, based on your individual needs, consider your assets, finances, location, vehicle type, and other drivers in your household. If you have a high net worth, consider buying more coverage, because the other driver might go after you in court. Consider how much you can afford paying each month for premiums, whether you live in an area with a higher risk of an accident, and whether your vehicle is new or old. New vehicles need additional coverage, while for older cars you might only need liability protection.

Higher coverage limits may increase your premiums but will save you money in the event of an accident. Everything that the insurance company does not cover will have to be paid out of pocket. The most commonly purchased policy limits are 250/500/100, with $250,000 in coverage for bodily injury to a single person, $500,000 in coverage for bodily injury per accident, and $100,000 in coverage for property damage.