Liability Coverage Explained: How Much Do You Actually Need? (2025)

So here’s a fun story from my adjusting days. Guy in a BMW runs a red light and T-bones a minivan with a family inside. Mom driving, dad in the passenger seat, two kids in the back. Everyone ends up in the hospital. The mom has surgery. One of the kids has a broken arm. Dad has whiplash and a concussion. It’s bad.

The BMW guy has state minimum liability coverage. In his state, that was 25/50/25. Which means $25,000 per person, $50,000 total per accident for bodily injury, and $25,000 for property damage.

Want to guess how far that went? The mom’s hospital bills alone were over $80,000. They blew through his entire policy limit before we even got to the other three people in the car. He was personally responsible for the rest. And when you’re responsible for medical bills that exceed your insurance, people can sue you. They can come after your house, your savings, your wages. I don’t know what happened to that guy after the claim settled but I imagine it wasn’t good.

This is why I get genuinely angry about state minimum liability limits. They’re a trap. They make people think they’re adequately covered when they’re absolutely not.

What liability coverage actually is

Real quick—liability coverage is the part of your insurance that pays for damage YOU cause to OTHER people. Their medical bills. Their car repairs. Their property if you somehow crash into their fence or whatever.

It doesn’t pay for your damage. It doesn’t pay for your injuries. That’s what collision, comprehensive, and medical payments coverage are for. Liability is specifically for protecting you from being personally responsible when you hurt someone else or damage their stuff.

It’s also the only type of car insurance that’s required by law in almost every state (except New Hampshire, which is just… doing its own thing I guess). But here’s the problem—the amounts states require are laughably low.

State minimums are embarrassingly inadequate

Let me show you some actual state minimum requirements and you tell me if these seem reasonable in 2025:

California: 15/30/5. That’s $15,000 per person, $30,000 per accident, $5,000 property damage. Five thousand dollars in property damage coverage. Do you know what it costs to repair a car in 2025? A basic fender bender is easily $3,000-5,000. If you total someone’s car, you’re looking at tens of thousands. Five grand covers almost nothing.

Florida: 10/20/10. Even worse. Ten thousand dollars per person for injuries. You can rack up $10,000 in medical bills from a single ER visit with imaging.

Texas: 30/60/25. Better, but still not great.

These minimums were set years ago and haven’t kept up with reality. Medical costs have exploded. Car values have gone up. Repair costs have skyrocketed. But the minimums just sit there, giving people a false sense of security.

What 100/300/100 actually means

Okay let me decode these numbers because they confuse people and insurance companies don’t explain them well.

When you see liability coverage written as 100/300/100, that breaks down like this:

First number (100): Maximum payout per person for bodily injury. If you injure someone, your insurance will pay up to $100,000 for their medical bills, lost wages, pain and suffering, etc.

Second number (300): Maximum payout per accident for bodily injury. If multiple people are hurt, your insurance will pay up to $300,000 total, but no more than $100,000 per person.

Third number (100): Maximum payout for property damage. If you wreck someone’s car, hit their house, destroy their landscaping—up to $100,000 to fix or replace their stuff.

So if you have 100/300/100 and you cause an accident that injures three people, each with $60,000 in medical bills, your insurance can cover all of it ($180,000 total, under the $300,000 cap, and nobody exceeds the $100,000 per person cap). But if you had state minimum coverage like 25/50/25, that same accident would leave you personally responsible for $130,000.

How much do you actually need

Look, I’m gonna be real with you—there’s no perfect answer here because it depends on your situation. But I can tell you what I personally carry and why.

I have 100/300/100 liability plus a $1 million umbrella insurance policy. Is that overkill? Maybe. But I also have assets I want to protect—my house, my savings, my future earnings. If I cause a serious accident and someone comes after me, I don’t want to lose everything.

Here’s the thing though—medical bills can get MASSIVE. According to the National Safety Council, the average cost of a medically consulted injury in a car accident is over $50,000. A disabling injury averages over $300,000. A fatality? The economic cost averages over $1.7 million when you factor in lost wages, medical bills, legal costs, everything.

So my recommendation—and this is just my opinion based on six years of seeing claims—is:

At minimum: 100/300/100. This is the floor. Don’t go below this.

Better: 250/500/100. This gives you more cushion for serious accidents.

If you have assets to protect: Add an umbrella policy. These are surprisingly cheap—like $150-300 per year for $1 million in coverage—and they kick in when your auto liability runs out.

Why people cheap out on liability (and why it’s a mistake)

I get it. Insurance is expensive. When you’re shopping for a policy and you see that higher liability limits cost more, it’s tempting to go with the minimum to save money.

But think about what you’re actually risking. If you cause an accident that exceeds your liability limits, you’re personally on the hook for the difference. People can sue you. They can garnish your wages. They can put liens on your house. Depending on your state, they can come after almost everything you own.

The difference between state minimum and 100/300/100 might be $20-40 per month. That’s a few coffees. Is saving $400 a year worth risking your house? Your savings? Your financial future?

I saw people get destroyed by this during my adjusting years. They’d cause a bad accident, their liability would max out at $50,000 or whatever, and they’d be looking at hundreds of thousands in personal liability. Some people declared bankruptcy. Some lost their homes. All because they wanted to save $30 a month on insurance.

What about property damage?

The third number in your liability coverage—the property damage part—gets overlooked but it matters.

The average new car costs something like $48,000 now. Even used cars are expensive. If you total someone’s newer vehicle, you could easily exceed those state minimum property damage limits of $5,000 or $10,000 or even $25,000.

And it’s not just cars. If you lose control and crash into someone’s house? Their fence and landscaping? A commercial building? A telephone pole that costs $10,000 to replace? Property damage adds up fast.

I’d recommend at least $100,000 in property damage coverage. It’s usually not that much more expensive than lower limits and it protects you from some really ugly scenarios.

Liability doesn’t cover YOU

One more thing I need to make clear because people get confused about this constantly: liability coverage does NOT cover your own injuries or your own car. At all.

If you cause an accident, your liability pays for the other people and the other car. For your stuff, you need collision coverage (for your car damage) and medical payments or PIP coverage (for your injuries).

I had people call me furious because they caused an accident, had “full coverage” (which isn’t a real thing but that’s another rant), and expected their insurance to fix their car. But they only had liability. Their liability paid for the other driver’s Lexus. Their own Honda sat in the driveway with a smashed front end and no payout.

Understand what you’re buying. Read your policy. Know the difference between what protects others and what protects you.

The umbrella policy thing

Real quick on umbrella policies because I mentioned them and people always ask. An umbrella policy is extra liability coverage that sits on top of your auto and home insurance. When your auto liability runs out, the umbrella kicks in.

So if you have 100/300/100 auto liability and a $1 million umbrella, you effectively have $1.1 million in coverage for a really bad accident.

Umbrellas are cheap because they rarely pay out—your main policies have to max out first. But when you need them, you REALLY need them. Anyone with assets worth protecting should consider one.

Talk to your insurance agent. Most companies that do auto also do umbrellas and you usually get a discount for bundling.

What to actually do

Pull up your insurance policy right now. Find your declarations page. Look at your liability limits. If they’re at or near state minimums, you’re underinsured and you should fix that immediately.

Get quotes for 100/300/100. See how much more it costs. It’s usually not as bad as people think. Then consider an umbrella if you own a home or have significant assets.

Don’t be the person who saved $30 a month and lost their house because they caused an accident their insurance couldn’t cover. I’ve seen it happen. It’s awful.

Collision just flew into the kitchen window. She’s fine—just spooked herself—but now she’s making that indignant chicken noise at me like it’s my fault the window exists. Anyway. Get more liability coverage. State minimums are a joke. Protect yourself.