Understanding Auto Insurance Liability: The Art Of Knowing Your Limit

Liability car insurance is a type of financial protection that covers you if you're found legally responsible for an accident that results in injury, death, or property damage. Liability insurance is required in most states, and it's important to understand how it works and what limits you should set for your policy.

Liability insurance is typically divided into two categories: bodily injury liability coverage and property damage liability coverage. Bodily injury liability covers medical costs, loss of income, and pain and suffering for those injured in an accident, while property damage liability covers the cost of repairing or replacing damaged items, including vehicles, homes, fencing, and storefronts.

When choosing liability limits for your auto insurance, it's essential to consider your state's minimum requirements as well as your personal financial situation. The limits you select will determine how much your insurance provider will pay out before you have to pay out of pocket. While you may want to save money by choosing lower limits, it's important to ensure that your coverage is sufficient to protect your assets in the event of a serious accident.

To determine your ideal liability limits, consider factors such as your state's requirements, the value of your personal assets, and your ability to cover any financial responsibilities that may arise after a collision. While liability insurance is crucial, it's also important to remember that it doesn't cover your own injuries, deaths, or property damage in at-fault accidents, so additional coverage may be necessary.

What does liability insurance cover?

Liability insurance covers the costs of any damage you cause to another person or their property. This includes bodily injury and property damage.

Bodily Injury Liability Protection

If you are found at fault in an accident, this type of liability insurance will cover the medical expenses of the other party. In some circumstances, it may even cover lost wages, pain and suffering, and/or legal fees if the injured party files a lawsuit.

Property Damage Liability Protection

If you are found at fault in an accident, this type of liability insurance will cover the costs of repairing or replacing the other person's property. This includes damage to their vehicle, as well as other types of property such as fences, buildings, and government infrastructure like guardrails and road signs.

It's important to note that liability insurance does not cover your own injuries or damage to your own property. It only applies when you are legally responsible for someone else's damages. Additionally, liability insurance has limits, so it will only cover costs up to a certain amount. The specific limits and types of coverage required vary from state to state.

What liability insurance doesn't cover

Liability insurance is an important type of insurance that covers a wide range of incidents and protects you from lawsuits. However, it is crucial to understand that liability insurance does not cover everything. Here are some key points about what liability insurance typically does not cover:

Damage to Your Own Property

Liability insurance covers property damage, but it is usually limited to third-party lawsuits. This means that if you or your employee damages your own property, your liability policy will likely not cover it. For instance, if you accidentally drive a tractor through your shop window, your liability insurance won't cover the repairs.

Intentional Damage

Intentional damage is generally not covered by any insurance policy, including liability insurance. This includes intentional damage caused by you or your employees to your own property or that of others.

Employee Injuries or Illnesses

Liability insurance typically does not cover injuries or illnesses sustained by your employees while on the job. For this, you will need workers' compensation insurance, which is legally required in most states. This type of insurance covers medical bills and ongoing care expenses for employees who are injured or become ill due to their work.

Vehicles Used for Business

Liability insurance usually excludes coverage for vehicles used for business purposes. If you or your employees drive for work, you will need commercial auto insurance to cover any vehicular accidents. This is because personal auto insurance policies typically exclude business use outside of commuting.

Professional Mistakes or Errors

Liability insurance does not cover professional errors or mistakes made by you or your employees. For this type of coverage, you will need professional liability insurance, which protects you from lawsuits related to unsatisfactory work, faulty workmanship, or bad advice given to a customer.

Expenses Exceeding Policy Limits

Liability insurance has coverage limits, and if your expenses exceed those limits, you will be responsible for the additional costs. This includes medical expenses, property damage, or any other expenses that surpass the maximum amount specified in your policy.

Liquor Liability

Liquor liability insurance is often a separate type of coverage that businesses serving alcohol may need to purchase. It covers legal fees and other expenses arising from incidents involving intoxicated customers, such as drunk driving, assault, or vandalism.

Discrimination Lawsuits

Employee discrimination lawsuits are typically not covered by general liability insurance. To protect yourself from legal expenses related to claims of harassment, discrimination, or wrongful termination, you may need to purchase employment practices liability insurance (EPLI).

Business Property Damage and Theft

Liability insurance does not cover damage to or theft of your business property. To protect your business assets, you will need a business owner's policy or commercial property insurance. This type of insurance covers the replacement of stolen items and repairs due to fire or certain weather events.

Uninsured Motorist Coverage

If your vehicle is hit by an uninsured or underinsured driver, liability insurance will not cover the damages. Instead, you will need to purchase separate uninsured motorist coverage to protect yourself in such situations.

It is important to carefully review your liability insurance policy to understand the specific exclusions and ensure that you have adequate coverage for your needs. In some cases, you may need to purchase additional types of insurance or increase your coverage limits to fill in the gaps.

Liability car insurance limits

Liability car insurance is a type of coverage that provides financial protection if you are found legally responsible for an accident that results in injury, death, or property damage. It is required in most states, and it is important to understand the limits of your liability coverage.

Liability coverage limits are typically divided into three categories: bodily injury per person, bodily injury per accident, and property damage per accident. For example, a 25/50/25 liability policy includes $25,000 in bodily injury coverage per person, $50,000 in bodily injury coverage per accident, and $25,000 in property damage coverage per accident. It's important to note that liability coverage does not include your own injuries, deaths, or property damage in at-fault accidents.

When choosing your liability limits, it's recommended to consider your personal circumstances and the value of your assets. While you may want to opt for higher limits to protect yourself financially, it's important to balance this with the cost of your insurance premiums. On average, liability insurance costs $650.35 per year, but the cost can vary depending on various factors such as your state, driving record, age, and vehicle value.

In addition to the basic liability coverage, you may also want to consider additional types of insurance, such as personal injury protection, collision coverage, or comprehensive coverage, to ensure you have adequate protection in different scenarios.

It's always a good idea to consult with an insurance agent or broker to determine the appropriate liability limits and additional coverages based on your specific needs and situation. They can guide you through the process and help you make an informed decision about your car insurance coverage.

How much liability coverage you need

Liability car insurance covers other people's expenses if you cause an accident. It covers two main components:

Bodily Injury Liability Coverage

This pays other people's medical costs when they're injured in a traffic accident that you caused. It covers things like medical bills, pain and suffering, lost wages, and even funeral costs.

Property Damage Liability Coverage

This pays for damage to other people's property after a traffic accident that you caused. This can range from cars and fences to buildings and government infrastructure, like guardrails and road signs. It may even pay for other people's personal belongings and a rental car for the other driver.

Nearly every state requires at least some liability coverage. The only exceptions are rural parts of Alaska and Virginia, where residents can waive liability coverage if they pay the state a fee.

While many states have low liability limit requirements, you may want a higher limit to protect your savings and other financial assets if you cause an accident. Medical bills and car repairs can be incredibly expensive, and if you're found at fault, you'll be responsible for the balance.

As a general rule, you'll want enough liability insurance to cover your net worth. That's equal to the value of all the cash and investments you have, plus the things you own, minus your debt. There's less incentive to sue you if you have a low net worth, so you may not need any additional coverage.

Your car insurance company might not offer liability limits high enough to cover your net worth. If that's the case, consider umbrella insurance. Umbrella policies expand auto and home liability insurance beyond your carrier's normal limits.

How much liability insurance should I buy?

The amount of liability insurance you should buy depends on a number of factors, including your state's requirements, your net worth, and your ability to meet financial responsibilities.

State Requirements

Every state has a minimum amount of car insurance that drivers are legally required to purchase. Liability insurance is the main mandated coverage and is required in most states. The minimum liability limits vary by state, so it's important to check the requirements for your specific state.

Net Worth

In addition to state requirements, it's recommended that you purchase enough liability insurance to cover your net worth. This includes the value of your cash, investments, and assets, minus any debt. If you have a high net worth, you may want to consider purchasing higher liability limits to protect your assets in the event of a lawsuit.

Financial Responsibilities

Another factor to consider is your ability to meet financial responsibilities that may arise after a collision. If you cause an accident that results in significant property damage or injuries, you may be held financially responsible for any expenses that exceed your liability limits. Therefore, it's important to assess your financial situation and determine if you have enough coverage to protect yourself in the event of a claim.

Recommended Liability Limits

While state requirements vary, auto insurance experts generally recommend liability coverage of at least 100/300/100. This means $100,000 in bodily injury liability per person, $300,000 in bodily injury liability per accident, and $100,000 in property damage liability per accident. If you have significant assets, you may want to consider even higher liability limits, such as $500,000 in coverage.

Frequently asked questions