New on FinoLib · Volume V: Personal Finance
I have added a new article to FinoLib, my finance education website: State Minimum Auto Insurance: What an At-Fault Accident Costs, part of Volume V: Personal Finance. It is part 3 of a 3-part guide. This page gives you the core of the topic in expert but plain language; the full article goes much deeper.
A closer look
Liability limits are written as three numbers. Texas’s minimum, 30/60/25, means up to $30,000 for each injured person, $60,000 for all injuries in one accident, and $25,000 for property damage. Minimums vary by state. New Hampshire instead requires proof that you could pay for an accident you cause. The Insurance Information Institute counts twelve no-fault states, including Florida, Michigan, New York and Pennsylvania: your own PIP pays your medical bills first, and you can sue the other driver only for serious injuries or large bills.
Liability-only coverage pays for damage or injury to others but nothing for your own car. It costs a fraction of full coverage, which adds collision and comprehensive. That is a reasonable trade for an old car worth little, and a real gap for a newer or financed one, where the lender requires full coverage anyway. If you owe more than the car is worth, GAP insurance covers the difference (3.9).
Driving for pay. Personal auto policies commonly exclude driving for compensation. Under the NAIC’s model bill for ride-hail work, at least 50/100/25 of primary liability must be in place while the app is on and you wait for a request, and $1 million once a ride is accepted; that waiting period is where drivers have been underinsured, often with no coverage for their own car. Ask your insurer for a rideshare endorsement (NAIC, as of Oct 2026).
How the price is set. Insurers price your driving record, where you live, the car, your age, your mileage, the limits and deductibles you choose, and in most states a credit-based insurance score. FICO estimates that about 95% of auto insurers use these scores where the law allows them; some states restrict them. Prices have risen fast: the NAIC’s average auto insurance spending rose 14.0% in 2023, to $1,282 a year. That average covers every kind of policy, liability-only included.
A worked example
Worked Example — A $1.5 Million Judgment
Assume, for illustration, an auto policy with 250/500/100 limits and a $1 million umbrella. You cause a crash, and one injured driver wins a $1,500,000 judgment. Auto policy: pays its $250,000 per-person limit. Umbrella: pays the next $1,000,000. You: $1,500,000 − $250,000 − $1,000,000 = $250,000. Without the umbrella you would owe $1,500,000 − $250,000 = $1,250,000, collected from savings, home equity and, in most states, wages (8.6: Auto Insurance). With a $2 million umbrella you would owe nothing; the umbrella pays $1,250,000 and $750,000 of its limit is never used.
Decision rule
Rule: Insure a risk when its worst plausible loss is more than half your emergency fund; self-insure it when the loss is smaller. Deductibles: take the highest offered, as long as the deductibles one event could trigger together (home and auto in one storm, or a health plan’s out-of-pocket maximum) total no more than half the fund (8.5). Liability: auto limits of at least 100/300/100, and an umbrella of at least net worth rounded up to the next million once net worth plus garnishable wages exceeds them (8.7).
The costliest mistake
Insuring the small losses and leaving the large ones open. Many households buy low deductibles while carrying the state-minimum liability limit. The 8.6 crash at Texas’s 30/60/25 minimum leaves $85,000 − $30,000 = $55,000 unpaid: $55,000 ÷ $609.17 = 90.3 paychecks at the federal garnishment ceiling, about 3½ years of the running household’s pay. Without an umbrella, the 8.7 judgment leaves $1,250,000.
Why It Matters
Rising climate-driven premiums are a direct, quantifiable financial consequence of Part 5’s housing decision — a home’s location now carries a material and growing insurance-cost dimension that didn’t weigh nearly as heavily a decade ago, and is worth pricing into an affordability calculation (Part 5.2) explicitly, not treated as a fixed, minor line item.
When This Breaks
A common starting point is liability of at least 100/300/100, or enough to protect your net worth, whichever is higher. The rule exists because state minimums are the least the law accepts: the Texas Department of Insurance itself warns they may be too low if you cause a multi-vehicle accident or total another driver’s car. It assumes your exposure is roughly your net worth. It breaks in three places.
Recap
Insure by severity, not probability: pay small losses from the emergency fund and transfer only the risks that would be financially devastating, such as a large liability judgment, a destroyed home or years of lost income.
What the full article covers
The full article includes worked examples, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, State Minimum Auto Insurance: What an At-Fault Accident Costs, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance