coverage limits and how to set them

One of the most important (and trickiest) parts of buying car insurance is deciding how much protection to get. This page aims to clarify your options when it comes to coverage limits and explain how limits affect your premium in exchange for added protection.

What are coverage limits?

A driver's car insurance coverage limit denotes the maximum amount of money an insurer will contribute toward a single claim. If you have a medical payments coverage limit of $5,000 per incident, then $5,000 is the max payout you can receive through that coverage after you file a claim.

The golden rule of coverage limits

As a general guide, you want to have the most coverage that you can comfortably afford.

How coverage limits affect your policy rate

Each policy is unique, like its policyholder. So there's no universal method for choosing how high or low to set your coverage limits. Finding the limits that work for you involves assessing your own finances and accident risk. Ask yourself, "Can I afford to pay accident fees out of my own pocket?"

If you have $10 million in your third-favorite checking account, you may be able to afford unforeseen and exorbitant expenses after a car accident. In that case, opting for lower limits just means you're willing to assume more of the risk each time you get behind the wheel.

If, like most people, you don't have that kind of emergency fund on standby, paying slightly higher premiums for higher coverage limits can offer a great amount of financial protection in case you're in an accident.

No matter how skilled you are behind the wheel (and we don't doubt it), accidents can and do happen. Through coverage limits, you can tailor your policy to protect your financial assets and provide you with much-needed peace of mind.

How limits vary by coverage type

Not all coverages have different limits to choose from. Others offer a wide range of premium-affecting limits. We'll explain how limits work within the context of some common coverages.

Liability coverage

As liability coverage is required in nearly all states, so, too, are the coverage limits that come with it. Each state sets its own minimum limits (minimum maximums) that drivers must maintain on their car insurance policies. These minimums are typically expressed in a 3-tier system: 25/50/15, for example. These numbers mean the following:

25 — The maximum amount (in thousands) the insurer will contribute
toward injury-related expenses per person
50 — The total amount the insurer will contribute toward
injury-related expenses per accident
15 — The max amount the insurer will pay for property damage for
each accident

When you buy your policy, you won't be able to select limits below your state's legal requirements. But you can always set limits that are higher.

Because liability coverage is intended to pay for injuries and damage you cause in an accident, consider opting for the most coverage you can afford. It may help to imagine a scenario where you accidentally sideswipe a new Bentley, which causes that Bentley to spin into an art museum and damage not-quite-priceless works of art. In other words, post-accident liability expenses can add up — and exceed lower coverage limits — in a hurry.

Comprehensive and collision coverage

If you add these 2 vehicle-protecting coverages to your policy, your limits will be the actual cash value, or ACV, of your car or truck. The ACV represents the most that each coverage can pay to replace your car in the event of a total loss.

Thus the driver of a new BMW would have a much higher comprehensive and collision "limit" than the driver of a 1987 Chrysler LeBaron with 100,000 miles on it.

Medical payments coverage

This is typically an optional coverage that can help pay for post-accident medical expenses for you or your passengers. Depending on your state and your insurer, there are typically a range of limits to choose from. In New York, for example, Esurance offers customers coverage limits between $500 and $10,000 per person, per incident.

Uninsured/underinsured motorist coverages

These coverages are required in some states and optional in others. They offer financial protection from at-fault drivers who lack sufficient liability coverage.

Regardless of the limits you select, uninsured/underinsured coverages are relatively affordable. Find out how raising your limits can affect your policy rate when you get your quote or by logging into your account anytime after you buy your policy.

Customized parts and equipment coverage

This is one optional coverage that you can tailor to meet your needs. It can pay to repair or replace any add-ons to your car — including your stereo, custom wheels, rims, etc. With Esurance, you can generally select a limit between $100 per incident and $4,000 per incident.

Choosing the limits that meet your needs

Coverage limits are all about risk.

While we sure hope you never cause $300,000 in damage in a car accident, carrying that much liability coverage can offer significant peace of mind and financial protection.

In exchange for the added protection, the cost of a coverage may increase. On the other hand, you can often lower your policy's premium by reducing your coverage limits. In doing so, you're assuming more of the financial risk in the event of an accident — in other words, you may need to pay more out of pocket.

It's ultimately up to you to decide whether the added premium is worth the added protection. But we can always help you make the best choice for your circumstances.

Our agents are standing by at 1-800-ESURANCE (1-800-378-7262) to help you navigate the sometimes-murky insurance waters, and you can always get a customized policy recommendation, limits included, through our online Coverage Counselor®.