Liability Limits: What They Mean, How They Work, and How to Choose the Right Coverage

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Written by J.J. Starr Edited by Lequita Westbrooks

Updated May 9, 2024

Liability car insurance covers you and your legal fees when you injure other people or damage their property. But it pays only up to the limits of your policy — you’ll need to cover any costs exceeding that amount. That’s why choosing the right liability limits for your car insurance is so important.

Many drivers believe state-minimum coverage is enough. But, with rising medical care and vehicle repair costs, minimum limits are typically too low for most drivers. This article explains what liability limits are, how liability insurance works, and how much liability coverage you need.

25/50/10 or 100/300/50: What the Numbers on Your Policy Mean

The numbers on your car insurance policy refer to its liability coverages and limits — the maximum amount your insurer pays per liability claim. In a 25/50/10 policy:

• 25 means $25,000 for bodily injuries per person
• 50 means $50,000 for bodily injuries per accident
• 10 means $10,000 for property damage per accident

Common policy limit packages include:

• 25/50/25
• 50/100/25
• 100/300/50
• 250/500/100

Let’s break down what these numbers cover.

What Liability Insurance Covers

Liability insurance pays for other people’s injuries and property damage when you’re at fault for an accident. Most policies consist of two different types of liability coverage. Let’s take a look at each.

Bodily injury liability

Bodily injury liability (BI) covers another person’s medical costs if you cause an accident that injures them. You have two BI liability limits: the first is per person, and the other is per accident. In a 25/50/25 policy, the first two numbers refer to your BI limits. Each injured person can get a maximum of $25,000 per accident. And your insurance company will pay up to $50,000 per accident for injuries to any other people.

If bodily injury costs exceed these limits, you’re on the hook to cover the rest.

Property damage liability

Property damage liability (PD) insurance covers the costs of damages to someone else’s vehicle and personal property resulting from an accident you cause. So, it helps pay for vehicle, building, or other property repairs or replacements. If property damage costs exceed this limit, you must pay the difference.

But how do you know which limits are best for you? We’ll cover how to choose the right limits in the next section.

How to Choose the Right Coverage Limits

Choosing the right limits means buying enough coverage to ensure you’re fully protected if you cause an accident. Let’s walk through the process in more detail.

1. Determine your budget

Knowing what you can afford is the key to figuring out how much insurance you need to buy. Higher liability limits will typically cost more, but they’re probably less expensive than you think and provide more financial protection.

If your budget is extremely tight, consider finding other ways to save money on car insurance rather than lowering your limits. If your limits are too low, an expensive liability claim can lead to financial disaster since you’d be responsible for paying all out-of-pocket costs that exceed your limits.

2. Start with state-minimum coverage limits

You need to at least meet your state’s minimum coverage requirements to legally drive. Keep in mind coverage limits vary by state, but the most common limits are 25/50/25. Other examples include Florida, which has the lowest limits of 10/20/10, and Alaska and Maine, which have the highest limits of 50/100/25.

3. Add other required coverages

If you lease or finance your car, your lender or leasing company will require you to have comprehensive coverage and collision coverage. These cover repairing or replacing your vehicle when you’re at fault.

4. Understand your financial risk

Every time you drive, you take on financial risk. Consider local accident rates, the average cost of medical bills, and the average cost to repair or replace your vehicle when deciding your coverage limits.

Even minor car accidents can exceed coverage on a policy with low limits. For instance, the cost of repairing a car with a minor front collision is $11,708.29, according to a 2023 AAA study. If your property damage liability limit is $10,000 or less, you’d exceed your coverage and must pay the overage out of pocket — $1,708.29 for the average accident.

5. Compare quotes from multiple insurers

Insurers consider many factors when determining your car insurance rates, and each insurer rates those factors differently. For example, while State Farm charges an average of $60 per month for liability coverage, Nationwide charges $87 per month, according to Compare.com data.

But averages won’t determine your rate — what might seem like the most expensive could be the cheapest for you. So, always compare quotes from three or more companies when shopping for a new policy.

How to Know If Your Current Limits Are Enough

While there isn’t a universal “best” amount of liability coverage, guidelines from trusted sources in the car insurance industry agree that buying more than state-minimum coverage is a good idea to protect yourself financially.

The National Association of Insurance Commissioners (NAIC), the Insurance Information Institute (Triple-I), and state departments of motor vehicles (DMVs) recommend purchasing higher coverage limits.

You also want to be sure that you’re protecting your assets and satisfying your lender’s requirements.

In addition to liability coverage, consider adding umbrella insurance to the mix. This provides coverage beyond the limits of your auto policy, homeowners insurance, or other insurance products. Adding $1 million in umbrella coverage typically costs between $200 and $300 annually ($16 to $25 per month), according to Triple-I.

How to Increase Your Liability Limits

You can increase your liability limits at any time. Simply call your insurance agent or visit your insurer’s online portal and request your new limits. Your insurer will adjust your premium on your subsequent bills.

You can also compare rates with higher liability coverage, as you may find a better deal with another insurer. You can switch car insurance policies at any time, typically without paying additional fees.

How much does it cost to increase your policy limits?

It doesn’t cost much to increase your liability coverage limits — typically between $10 and $20 more per month. Check the rate differences between limits when shopping for a new policy. The cost difference tends to shrink as you raise limits — the difference between 50/100 and 100/300 is usually smaller than the difference between the state minimum and 25/50.

So, the more coverage you buy, the better the deal.

What to Expect If You Exceed Your Policy’s Liability Limits

If you cause a car accident and the repair costs or medical bills exceed your insurance coverage limits, you’re personally responsible for paying the difference. For instance, imagine you have auto insurance with property damage liability limits of $25,000. If you cause an accident that results in $40,000 of damage to another person’s vehicle or property, your insurance will cover the first $25,000.

But you’d need to cover the remaining $15,000 out of pocket. If you can’t pay this amount, the other party could sue you for the remaining costs, which could lead to wage garnishments, asset seizures, and other financial consequences.

That’s why it’s so important to buy enough auto liability coverage.

Liability Insurance Limits FAQs

Even though liability coverage is the most common type of car insurance, it can be confusing. Here are some quick answers to the most common questions people ask about liability limits.

What do the numbers mean on your car insurance policy?

The numbers on your car insurance policy — 100/300/50, for example — represent your liability coverage limits in shorthand form. Each number corresponds to the type of liability coverage and the maximum amount your insurer will pay.

• First: $100,000 bodily injury limit per person
• Second: $300,000 bodily injury limit per accident
• Third: $50,000 property damage limit per accident

How high should your liability limits be?

How much liability insurance you need depends on your assets and earnings. If you have a high net worth, that likely means 100/300/50 or higher. You should also consider umbrella insurance to cover liability outside of your standard auto or home insurance policy.

What happens if medical or repair costs are more than your liability limits?

You’re financially responsible for the difference if insurance claim costs exceed your liability limits. This usually means paying out of pocket. If the other driver sues you, the courts could seize your assets or garnish your wages, and you could face other financial hardships.

What’s the difference between bodily injury and property damage liability limits?

Bodily injury liability coverage pays for costs related to injuries you cause to others in an accident, such as medical expenses, lost wages, funeral costs, and pain and suffering. Property damage liability coverage pays to repair or replace someone else’s property, such as repairs to a car or a building.

Sources

1. AAA, “2023 Dec Report Cost of ADAS Repair,” Accessed April 29, 2024.
2. Insurance Information Institute, “How much auto coverage do I need?,” Accessed April 29, 2024.
3. NAIC, “NAIC Consumer Shopping Tool for Auto Insurance,” Accessed April 29, 2024.
4. Wisconsin Office of the Commissioner of Insurance, “Consumer’s Guide to Auto Insurance,” Accessed April 29, 2024.
5. New York Department of Financial Services, “Optional Auto Insurance,” Accessed April 29, 2024.
6. Kansas Insurance Department, “Auto Insurance Shopper’s Guide,” Accessed April 29, 2024.
7. Insurance Information Institute, “What is covered by a basic auto insurance policy?,” Accessed April 29, 2024.

J.J. Starr Insurance Writer

J.J. Starr is an insurance writer for Compare.com who specializes in auto insurance and personal finance. She has a passion for helping people save money by explaining complex topics like car insurance in a way that is simple and easy to understand. Prior to writing for Compare.com, J.J was a registered banker and life insurance consultant. She holds a master's degree in writing from New York University and a bachelor's degree from Stephens College.