What determines the liability coverage limit in an auto insurance policy?

The liability coverage limit in an auto insurance policy is primarily determined by the minimum required by state law. Each state establishes its own requirements for minimum liability coverage to ensure that drivers have a baseline level of protection for damages or injuries they might cause to others while operating a vehicle. This legal requirement is intended to promote responsible driving and protect the public.

While individual preferences, the vehicle's market value, and the insurance company's discretion can influence coverage decisions, they do not set the foundational limit. Hence, the option that refers to state law captures the essence of mandated insurance standards, making it the correct choice for determining liability coverage limits.