CarInsurance.com Insights
- Most drivers are either slightly overinsured or dangerously underinsured. A quick review of liability limits, deductibles and vehicle value can reveal costly misalignment.
- Low liability limits are the biggest financial risk. If your coverage is lower than your total assets (home equity, savings, investments, income), you’re likely underinsured.
- Life changes quietly shift your risk exposure. Buying a home, adding a teen driver, increasing income or moving states should automatically trigger a coverage review.
- A 5-minute self-assessment can prevent major financial damage. Checking limits, deductibles, missing coverages and asset exposure helps align protection with real risk.
Most drivers don’t think about their car insurance until the renewal notice hits — and when the new premium is higher than expected, the instinct is to slash coverage wherever possible. But cutting randomly to save a few dollars a month can leave you dangerously exposed.
Being slightly overinsured costs you money you don’t need to spend. Being underinsured can cost you tens of thousands after a single accident. The difference between the two is often just a few coverage adjustments, but most people never take the time to figure out where they actually stand.
This guide will help you find that middle ground: enough coverage to protect your finances without paying for more than you need. Here’s how to tell — in five minutes — whether your coverage matches your real risk.
TL;DR: How to tell if you’re overinsured or underinsured
Not sure whether you’re overinsured or underinsured?
Here are some ways to tell:
- If your liability limits are lower than your total assets, you’re likely underinsured.
- If your deductible is lower than you could comfortably pay tomorrow, you’re possibly overinsured.
- If your car is worth less than 10 times your annual collision/comprehensive premium, review your coverage.
- If you’ve had a major life change in the past year, reassess immediately.
- If you don’t know your limits without checking, it’s time for a review.
Open your policy now — this takes 5 minutes.
Here’s what being overinsured looks like
Overinsured means you’re paying for protection that exceeds your realistic financial exposure.
Common signs of being overinsured:
- Carrying collision/comprehensive on a car worth less than $3,000 to $5,000.
- Extremely low deductibles ($100–$250) when you could handle $1,000.
- Duplicate coverages (e.g., roadside assistance already included elsewhere, such as AAA).
- Carrying add-ons you don’t use (rental reimbursement without commute reliance).
Quick check formula
Here’s a formula to figure this out:
- Annual full coverage premium × three years vs. vehicle value.
- If three years’ worth of premiums ≈ the car’s value, consider dropping coverage.
For example, if you’re paying $600 per year for full coverage (comprising liability, comprehensive and collision on a $2,500 car, you could consider dropping full coverage to liability only because the $2,500 is comparable to the $2,400 you’re paying in three years in full coverage premiums.
What does being underinsured look like?
Being underinsured means your policy limits aren’t high enough to protect your assets or income after a serious accident. This is risky because it puts other assets like your savings, future income and your home at risk.
And with average 2024 liability claim amounts running from $6,770 for a property damage claim to $28,278 for a bodily injury liability claim (according to Triple-I), no one wants to pay for that out of pocket.
Common red flags:
- State minimum liability limits or 50/100/50 limits only
- No uninsured/underinsured motorist coverage
- Low bodily injury limits with high income or home ownership
- No umbrella policy with significant assets
60-second asset test
To see whether you have enough liability coverage, add up the following:
- Home equity
- Savings
- Investments
- Future income exposure
If your liability limits are less than your total exposed assets, you’re likely underinsured.
For example, if you’re a homeowner with $300K in assets carrying only state minimum liability limits, you’re severely uninsured. You’re uninsured, even carrying 50/100/50 limits – bump that up to a full coverage policy with limits of 100/300/100.
Scott Holeman, director of media relations at the Insurance Information Institute, said to know if you have the right amount of insurance coverage, review:
- How much liability coverage you carry (e.g., $100,000 per person/$300,000 per accident vs. $25,000/$50,000).
- Whether those limits would protect your savings, home equity, or future earnings if you were sued after a major crash.
- If your policy also includes collision and comprehensive coverage if you have a loan or lease.
“Being underinsured doesn’t mean you lack any coverage. It means your coverage may be too low to protect you fully in a serious accident,” he says. “A policy review with your insurance professional, focusing on liability and underinsured motorist limits, is a practical way to ensure you’re truly protected.”
High-risk coverage gaps drivers miss
You might have specific circumstances to plan for, such as a pricey financed vehicle, a teen driver in the house or the need for a rideshare endorsement.
Take a look at a few coverage gaps drivers miss below.
- No uninsured motorist coverage in high uninsured motorist states.
- No gap insurance on financed vehicles.
- High deductibles with low emergency savings.
- No rideshare endorsement when driving for Uber/Lyft.
- No coverage updates after adding a teen driver. Adding a teen driver costs $3,594 per year with full coverage.
- Outdated medical payments/PIP limits.
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How life changes affect your coverage needs
Your car insurance needs don’t stay the same just because your policy does. Major life events can shift how much coverage you need — sometimes significantly — and most drivers don’t reassess until it’s too late.
Buying a home means you have more assets to protect. Getting married or divorced changes your household risk profile. Having a child, adding a teen driver or seeing a big jump in income can all reshape what’s at stake if you’re involved in a serious accident. Even positive milestones like paying off your car or retiring can open the door to coverage adjustments that save you money without sacrificing protection.
If any of the following apply to you, it’s time to take a closer look at your policy.
Life events that trigger an insurance coverage review
- Buying a home
- Getting married or divorced
- Having a child
- Significant salary increase
- Paying off a vehicle
- Moving
- Adding a teen driver
- Retirement
“Coverage needs often change, whether it’s a new car, new savings, a bigger medical cost risk, or inflation-driven repair costs,” Holeman said. “Work with your insurance professional to do an annual review to see if your policy limits need to be adjusted.”
Real-life exampleWhen I moved into my partner’s house, I rented out my condo and re-evaluated my insurance needs. I called my insurance provider, inquired about umbrella insurance and ended up purchasing a $1 million umbrella policy (this policy has underlying limits of both your home and auto policies).
I do have rental property insurance, but the umbrella policy provides extra peace of mind that if someone was injured on my rental property and my tenants’ renters’ coverage wasn’t sufficient, I would be able to cover any liabilities.
Overinsured vs. underinsured: Quick comparison
| Category | Overinsured | Underinsured |
|---|---|---|
| Definition | Paying for more coverage than your financial risk requires | Carrying coverage limits too low to protect your assets |
| Main Risk | Wasted premium dollars | Personal financial exposure after a serious accident |
| Liability Limits | Very high limits relative to assets | State minimum or low limits vs. total assets |
| Collision/Comprehensive | Carrying full coverage on a low-value car | Dropping coverage too soon on a financed or valuable car |
| Deductible | Very low deductible despite strong emergency savings | High deductible without enough savings to cover it |
| Add-Ons | Duplicate roadside, rental, or minor extras you rarely use | Missing UM/UIM, gap insurance or PIP |
| Vehicle Value Test | 3 years of premiums ≈ car’s value | Skipping coverage on a newer or financed vehicle |
| Asset Protection Test | Liability limits greatly exceed exposed assets | Liability limits lower than home equity, savings and income |
| Typical Outcome | Higher monthly payments than necessary | Potential lawsuits, wage garnishment and asset loss |
| Best Fix | Adjust deductibles, remove low-value/extra coverages | Increase liability limits, add umbrella/missing protections |
How to tell if you have the right amount of car insurance: A 5-minute self-assessment
Step 1: Check your liability limits
Liability coverage is the foundation of your policy — it pays for injuries and property damage you cause in an accident. If your limits are too low, you’re personally responsible for anything above them.
Most people should aim for 100/300/100: $100,000 per person for bodily injury, $300,000 per accident and $100,000 for property damage.
These thresholds are well above what most states require but far closer to what a serious accident can actually cost. If you own a home or have significant savings, consider going even higher — or adding an umbrella policy for additional protection.
Step 2: Check your vehicle’s value against your coverage cost
If you carry collision and comprehensive coverage, compare what you’re paying for those coverages against your car’s current market value.
A good rule of thumb: If your annual collision and comprehensive premium combined exceeds 10% of your vehicle’s value, it may not be worth carrying.
For newer or financed vehicles, full coverage is almost always worth it — and often required by your lender. But if you’re driving a paid-off car worth $5,000 or less, the math may favor dropping those coverages and putting the savings toward a stronger emergency fund.
Step 3: Check your deductible against your emergency fund
Your deductible is what you pay out of pocket before insurance kicks in. A higher deductible lowers your premium, but only works if you can actually afford it when the time comes.
Ask yourself: if you had to file a claim tomorrow, could you comfortably cover your deductible without going into debt? If the answer is no, your deductible is too high. If you have a healthy emergency fund and a low deductible, you may be paying more in premiums than you need to.
Step 4: Check for missing high-risk coverages
A basic policy doesn’t cover some of the most financially devastating scenarios. Review whether you’re carrying these often-overlooked protections:
Uninsured/underinsured motorist coverage protects you when the at-fault driver has no insurance or not enough of it. In many states, this is optional, but it’s one of the most valuable coverages you can carry, given how many drivers on the road are uninsured or underinsured.
“Even if your own coverage is good, you can be financially vulnerable if the other driver has little or no insurance,” Holeman said. “Many insurers and states recommend or require uninsured/underinsured motorist (UM/UIM) coverage to protect you when the at-fault driver lacks sufficient insurance.”
Medical payments or personal injury protection covers medical expenses for you and your passengers regardless of fault. If you don’t have strong health insurance, this coverage becomes especially important.
Rental reimbursement pays for a rental car while yours is being repaired after a covered claim. It’s inexpensive to add and can save you hundreds in out-of-pocket costs.
Gap insurance covers the difference between what you owe on a financed or leased vehicle and what it’s worth if it’s totaled. If you’re upside down on your loan, this coverage can prevent a major financial hit.
Step 5: Confirm your coverage reflects your current life stage
Pull up your policy and ask whether it still matches your life. Are your liability limits high enough to protect the assets you have today — not the assets you had when you first bought the policy? Are the drivers listed on your policy accurate? Have you added or removed vehicles? Has your commute changed?
If your policy hasn’t been updated since your last major life event, there’s a good chance something is out of alignment.
What your answers tell you
If you answered yes to most of these checks, you’re likely in good shape — your coverage appears to match your risk and your financial situation.
If you found multiple gaps — low liability limits, missing coverages or a deductible you can’t afford — you may be underinsured and exposed to serious financial risk. It’s worth contacting your insurer or shopping for a policy that closes those gaps.
If you’re carrying high levels of coverage on a low-value vehicle or paying for protections you no longer need, you may be overinsured. A few targeted adjustments could lower your premium without putting you at risk.
If you’re uninsured
Review and increase liability limits today.
“Being underinsured doesn’t mean you lack any coverage. It means your coverage may be too low to protect you fully in a serious accident,” Holeman said.
If you’re overinsured
Compare deductibles and reassess older vehicle coverage.
Frequently Asked Questions: The right coverage amount
Is it better to be slightly overinsured or underinsured?
It’s generally safer to be slightly overinsured than underinsured. Overinsuring may cost you extra in premiums, but underinsuring can expose your savings, home equity, and future income to lawsuits after a serious accident.
The biggest financial risk for most drivers isn’t minor vehicle damage — it’s liability from injuries. If you’re unsure, prioritize higher liability limits first, then evaluate whether optional coverages (like low deductibles or add-ons) are worth the cost.
How often should I review my car insurance coverage?
Review your coverage at least once per year and anytime you experience a major life change. Events like buying a home, getting married, increasing your income, adding a teen driver, paying off a vehicle or moving states can all change your risk exposure.
A quick annual check ensures your liability limits, deductibles, and optional coverages still match your financial situation. Most reviews take less than 10 minutes and can prevent costly gaps.
Does raising my deductible significantly lower my premium?
Yes — increasing your deductible typically lowers your premium, sometimes meaningfully. Moving from a $250 to a $1,000 deductible can reduce collision and comprehensive costs because you’re taking on more out-of-pocket risk.
However, only raise your deductible if you could comfortably pay it tomorrow from savings. A lower premium isn’t helpful if you can’t afford the deductible after an accident.
When should I drop collision or comprehensive coverage?
Consider dropping collision or comprehensive coverage when your car’s market value is low relative to the annual premium. A common rule: if three years of comp/collision premiums equal or exceed your vehicle’s value, it may be time to reassess.
For older cars worth a few thousand dollars, paying high annual premiums may not make financial sense. Always compare potential claim payout against total premium cost before removing coverage.
Do high earners need umbrella insurance?
High earners or individuals with significant assets often benefit from umbrella insurance. An umbrella policy provides additional liability protection above your auto policy limits, typically starting at $1 million.
If you own a home, have substantial savings, or have strong future income potential, umbrella coverage can protect against large lawsuits after serious accidents. It’s usually relatively inexpensive compared to the financial protection it provides.
Does car insurance protect my future wages?
Yes. Liability coverage can protect your future income if you’re sued after causing an accident. If damages exceed your policy limits, your assets and wages may be at risk, depending on state laws. That’s why drivers with growing incomes or valuable assets should reassess liability limits regularly.
Adequate coverage helps shield both your current savings and your earning potential.
Resources & Methodology
Sources
Insurance Information Institute. “Facts + Statistics: Auto insurance.” Accessed February 2026
Methodology
CarInsurance.com commissioned Quadrant Information Services to get car insurance rates. The rates are based on the sample profiles of 40-year-old male and female drivers carrying full coverage policies with limits of 100/300/100 and $500 collision and comprehensive deductibles. Read the detailed methodology for more information.
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