Insurance Payouts: Beyond Policy Limits?

Liability insurance is a mandatory part of car insurance in most states. It covers injury and damage caused by the policyholder in a car accident, along with the cost of defending or settling lawsuits brought against them because of the accident. Liability coverage is typically broken down into two categories: bodily injury liability and property damage liability. Bodily injury liability helps cover the cost of other parties' injuries, including emergency care, continued medical costs, and lost wages. Property damage liability helps cover the cost of damage to other parties' property, including vehicle damage, the cost of a replacement vehicle, and damage to buildings, homes, or businesses.

While liability insurance covers most costs related to the policyholder's liability in an accident, there are some costs that are not covered. For example, liability insurance does not cover damage caused by intentional acts, damage to the policyholder's vehicle, or injuries to passengers in the policyholder's vehicle.

The amount of liability insurance that a person needs depends on their state's insurance laws, their financial situation, and their net worth. In most states, the minimum coverage required by law includes liability and possibly some additional types of coverage. However, experts often recommend purchasing full coverage insurance, which includes comprehensive and collision coverage, for more robust protection.

Liability insurance and its costs

Liability insurance is a mandatory part of car insurance in most states. It covers injury and damage caused by the policyholder in a car accident, as well as the cost to defend or settle lawsuits brought against them because of the accident. It is typically broken down into two categories: bodily injury liability and property damage liability.

Bodily injury liability covers the cost of other parties' injuries, including emergency and continued medical costs, as well as lost wages. Property damage liability covers the cost of damage to other parties' property, including vehicle damage, the cost of renting a replacement vehicle, and damage to buildings, homes, businesses, fences, and mailboxes. It is important to note that liability insurance does not cover damage to the policyholder's own vehicle or injuries to passengers in their vehicle.

The cost of liability insurance varies depending on several factors, including the state in which the policyholder lives, their age, the type of car they drive, their driving history, their credit-based insurance score, and the coverage types and limits they choose. The average cost for minimum coverage auto insurance in the United States is $644 per year, while full coverage costs an average of $2,314 per year. However, these costs can be higher or lower depending on individual circumstances.

When determining the amount of liability insurance needed, it is important to consider state insurance laws, financial situation, and net worth. In some states, liability insurance is required to legally operate a vehicle, and the minimum coverage limits vary by state. It is generally recommended to have liability insurance that covers at least one's net worth to provide adequate financial protection.

What liability insurance covers

Liability insurance is a mandatory part of car insurance in most states. It covers injury and damage caused by the policyholder in a car accident, along with the cost of defending or settling lawsuits brought against them as a result of the accident. It is typically broken down into two categories: bodily injury liability and property damage liability.

Bodily Injury Liability

Bodily injury liability covers the cost of other parties' injuries that are caused by the policyholder in an at-fault accident. This can include emergency care, continued medical costs, and lost wages. It also covers related legal expenses, such as lawsuits and attorney and court fees. It is important to note that bodily injury liability only pays up to the policy's limits, and any costs that exceed this limit may become the policyholder's responsibility.

Property Damage Liability

Property damage liability covers the cost of damage to other parties' property when the policyholder is at fault in an accident. This includes damage to other vehicles, as well as buildings, guardrails, utility poles, and fences. It also covers the cost of a rental vehicle for the other party while their car is being repaired, and any lost business revenue due to physical storefront damage. Like bodily injury liability, property damage liability also covers related legal expenses. However, it does not cover damage to the policyholder's own vehicle, and any costs exceeding the policy limit may become the policyholder's responsibility.

Situations Where Liability Insurance Applies

• A driver with liability insurance unintentionally causes a collision with another vehicle. The driver's liability coverage will cover the expenses related to the damage inflicted on the other driver's vehicle. However, the driver at fault would need separate coverage to cover the cost of repairs to their own vehicle.
• A driver's vehicle is severely damaged by a weather event, such as a hailstorm. In this case, liability insurance would not cover the damage to the driver's vehicle. Instead, the driver would need collision or comprehensive coverage to cover the cost of repairing or replacing their vehicle.

What Liability Insurance Does Not Cover

Liability insurance does not cover damage caused by intentional acts or damage to the policyholder's own vehicle in an at-fault accident. It also may not cover injuries to passengers in the policyholder's vehicle, which may instead be covered by personal injury protection or medical payments coverage.

What liability insurance doesn't cover

Liability insurance is a critical component of auto insurance, providing financial protection in the event of at-fault accidents. However, it's important to understand that liability insurance doesn't cover everything. Here are some key points about what liability insurance typically does not cover:

• Intentional Damage: Liability insurance generally excludes coverage for intentional or criminal acts, even if the insured party is found legally responsible.
• Contractual Liabilities: Any damage or injury resulting from contractual obligations is typically not covered by liability insurance.
• Injuries to Passengers in Your Vehicle: Liability insurance covers injuries to other parties, but it usually doesn't cover medical expenses for passengers in your vehicle. For that, you may need personal injury protection or medical payments coverage.
• Damage to Your Own Vehicle: Liability insurance covers damage to other people's property, but it doesn't cover repairs to your own vehicle. For that, you'll need collision coverage or comprehensive coverage.
• Vehicles Insured on Your Policy: If any of the vehicles listed on your policy are damaged in an accident, liability insurance won't cover the repairs. You'll need to rely on specific types of insurance, like comprehensive and collision coverage, for those costs.
• Certain Types of Vehicles: Liability insurance typically applies to private passenger automobiles, but it may not cover damage or injuries caused while driving a rental car, a company-owned vehicle, or a vehicle used for business or commercial purposes.
• Legal Fees in All Circumstances: While liability insurance can cover legal costs associated with accidents, it may not cover all types of legal fees, especially if they are not directly related to an accident, such as attorneys' fees if you are sued because of an accident.
• Damage in All Locations: Liability insurance may have geographic limitations and may not cover accidents that occur in certain areas, such as Mexico or Canada.
• All Medical Expenses: Liability insurance covers medical expenses for injured parties, but there may be limits, and some policies may not cover all types of medical costs. It's important to review your policy to understand any exclusions or limitations.

Liability insurance vs full coverage

Liability insurance and full coverage are two types of auto insurance policies that offer varying degrees of protection. While liability insurance is mandatory in most states, full coverage is often required by lenders when leasing or financing a car. Here is a detailed comparison between the two:

Liability Insurance:

Liability insurance is a mandatory part of car insurance in almost every state. It covers injury and damage caused by the policyholder in a car accident, along with the cost of defending or settling lawsuits arising from the accident. Liability coverage typically consists of two categories:

• Bodily Injury Liability: This covers the cost of other parties' injuries caused by the policyholder in an accident. It includes emergency care, ongoing medical costs, and lost wages.
• Property Damage Liability: This covers the cost of damage to other parties' property caused by the policyholder in an accident. This includes damage to vehicles, buildings, guardrails, utility poles, and fences.

The minimum liability coverage limits vary by state, and it is important to understand your state's requirements. Liability insurance does not cover damage to the policyholder's vehicle or their injuries in an at-fault accident. It also does not cover intentional damage or injuries to passengers in the policyholder's vehicle.

Full Coverage:

Full coverage auto insurance includes the state-required liability insurance along with additional coverages. It is often referred to as having both collision and comprehensive coverage. Collision coverage pays for damage to the policyholder's vehicle caused by collisions with other vehicles or objects, regardless of who is at fault. Comprehensive coverage pays for repairs in non-collision incidents, such as vandalism, weather damage, natural disasters, animal strikes, and theft. Full coverage also typically includes higher liability limits than the state requirement, providing more financial protection.

Full coverage is not legally required in all states but is often mandated by lenders when leasing or financing a new car. It is recommended for those who cannot comfortably afford to replace their car if it is destroyed or stolen. Full coverage may be unnecessary for older vehicles when the cost of adding full coverage exceeds the value of the car.

Cost Comparison:

The average cost of minimum liability coverage in the United States is $644 per year, while full coverage costs an average of $2,314 per year. However, the cost of insurance varies depending on factors such as age, driving history, vehicle type, and location. It is important to compare rates and coverages from different providers to find the best policy for your needs.

Liability insurance limits

Liability insurance is a mandatory part of car insurance in most states. It covers injury and damage caused by the policyholder in a car accident, as well as the cost of defending or settling lawsuits brought against them as a result of the accident. Auto liability coverage is typically divided into two categories: bodily injury liability and property damage liability.

Bodily Injury Liability

This covers the cost of other parties' injuries that are caused by the policyholder in an at-fault accident. This can include emergency care, continued medical costs, and lost wages. The minimum liability limits vary by state, with some requiring a minimum of $15,000 for injury/death to one person and $30,000 for injury/death to more than one person. However, these limits may be too low in the case of a multi-vehicle accident or if the other driver's car is totalled. In these cases, the policyholder might have to pay the remaining costs out of pocket if they don't have enough liability coverage.

Property Damage Liability

This covers the cost of damage to other parties' property when the policyholder is at fault in an accident. This includes damage to the other driver's vehicle, as well as damage to buildings, guardrails, utility poles, and fences. As with bodily injury liability, the minimum coverage limits vary by state, with some requiring a minimum of $5,000 for property damage. It's important to note that property damage liability does not cover damage to the policyholder's own vehicle in an at-fault accident.

Calculating Liability Insurance Needs

The amount of liability insurance needed depends on individual circumstances, but it's generally recommended that policyholders have enough liability insurance to cover their net worth. Consulting a licensed insurance professional is a good way to determine the appropriate level of coverage. It's also important to understand the insurance laws in your state, as minimum coverage requirements vary.

Liability Insurance Costs

The average cost of minimum coverage auto insurance in the United States is $644 per year, while full coverage costs an average of $2,314 per year. The cost of liability insurance will depend on various factors, including age, type of car, driving history, location, and credit-based insurance score. Higher coverage limits will result in higher monthly costs.

Frequently asked questions