Paul Sanchez
Liability car insurance is a type of insurance that covers the costs of other people's injuries and property damage if you're at fault in an accident. It's required in most states and is usually the most expensive part of a policy.
Liability insurance consists of two types: bodily injury liability and property damage liability. The former covers the victim's lost wages and medical bills, while the latter covers repair costs for their vehicle or stationary objects, like their home or fence, that may have been damaged in the accident.
Liability insurance also covers legal fees if the policyholder is sued after causing an accident.
| Characteristics | Values |
|---|---|
| Type | Liability car insurance |
| Purpose | Covers the cost of the other driver's injuries and property damage if you're at fault in an accident |
| Components | Bodily injury liability coverage, Property damage liability coverage |
| What it covers | Other peoples’ medical costs after accidents the policyholder is at fault for, Damage to other peoples’ property, including cars, houses, or fences, Legal fees if the policyholder is sued after causing an accident |
| What it doesn't cover | The policyholder’s medical expenses resulting from an at-fault accident, Damage to the policyholder’s vehicle |
| Cost | $1,407 per year on average |
What You'll Learn
Bodily injury liability coverage
In addition to medical expenses, Bodily Injury Liability Coverage can also cover lost income if the injured person is unable to work due to their injuries. It can even provide compensation for emotional stress or prolonged pain resulting from the accident. Unfortunately, this type of coverage does not extend to your own medical expenses or vehicle repairs; separate coverages are needed for those scenarios.
When determining how much Bodily Injury Liability Coverage you need, it is recommended to consider your net worth, which includes your assets and savings. This is because, in the event of a lawsuit, there is less incentive for someone to sue you if your net worth is low. Experts generally suggest having BI limits of at least $100,000/$300,000, but you may want to increase your limits to match your net worth for added protection.
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Property damage liability coverage
The amount of property damage liability coverage you need depends on your state's requirements and your personal situation. Most states mandate a minimum level of coverage, but it is often recommended to purchase higher limits to adequately protect yourself. If you own a home or expensive items, travel in high-traffic areas, or live in an area with expensive vehicles, you may want to consider raising your coverage limit. Additionally, if the cost of damages exceeds your coverage limit, you will be held responsible for the remaining cost. Therefore, it is crucial to ensure your coverage is sufficient to protect yourself financially in the event of an accident.
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When is liability insurance required?
Liability insurance is required in nearly every state in the US. It is also a requirement in some form in every state that drivers show they can pay if they or someone else driving their car causes a crash.
In California, for example, drivers must show financial responsibility by buying auto liability insurance. California law states:
> "All drivers and all owners of a motor vehicle shall at all times be able to establish financial responsibility and shall at all times carry in the vehicle evidence of the form of financial responsibility in effect for the vehicle."
If you do not have auto liability insurance, you can be fined, your license may be suspended, and your vehicle could be impounded.
In Virginia, car insurance is required but drivers can opt out if they pay a $500 uninsured motorist fee each year. In New Hampshire, drivers are not required to buy car insurance but must be able to demonstrate financial responsibility if they cause a car accident.
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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 the value of your assets.
State Requirements
Nearly every state in the US requires drivers to have a minimum level of liability insurance. The only exceptions are rural parts of Alaska and the state of Virginia, where residents can opt-out of liability coverage by paying the state an annual fee. The minimum liability coverage required by each state varies, but common minimums are $25,000 per person and $50,000 per accident for bodily injury, and $25,000 for physical damage. However, these minimums are often not enough to cover the costs of a serious accident, so it is recommended that you purchase higher coverage limits than your state requires.
Net Worth and Assets
The general rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit if you cause a car accident. If you have significant assets, such as a home or substantial savings, you will want to make sure your liability coverage is high enough to protect them. Liability insurance typically covers bodily injury and property damage to others, but it does not cover your own injuries or damage to your vehicle. If you have a lot to lose in a lawsuit, consider purchasing an umbrella insurance policy, which can provide additional liability coverage of $1 million or more.
Types of Liability Coverage
When purchasing liability insurance, you will need to decide on the coverage limits for bodily injury per person, bodily injury per accident, and property damage per accident. For example, a policy with coverage limits of 100/300/100 would provide $100,000 in bodily injury liability insurance per person, $300,000 in bodily injury liability per accident, and $100,000 in property damage liability per accident. The cost of liability insurance will depend on factors such as your driving history, the amount of coverage you purchase, and other factors that vary by state and company.
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What does liability insurance not cover?
Liability insurance covers the costs of other drivers' property damage and bodily injuries if you are found at fault in an accident. However, it does not cover your own expenses or injuries. Here are some things that liability insurance typically does not cover:
Vehicle Repairs and Property Damage
Liability insurance does not cover repairs to your vehicle or property damage resulting from an accident. This includes damage to your car, home, or any other personal property. To cover these expenses, you would need to purchase additional insurance, such as collision coverage.
Medical Bills and Personal Injuries
Liability insurance does not cover your own medical bills or personal injuries sustained in an accident. For this, you would need to rely on your health insurance or personal injury protection coverage.
Comprehensive Coverage
Liability insurance does not include comprehensive coverage, which protects your vehicle from non-collision-related incidents such as natural disasters, vandalism, fire, or falling objects. If you want protection against these types of events, you will need to purchase comprehensive insurance separately.
Underinsured or Uninsured Motorists
In the event that you are in an accident with a driver who does not have insurance or does not have sufficient insurance coverage, your liability insurance will not cover the costs. To protect yourself in these situations, you may want to consider adding uninsured or underinsured motorist coverage to your policy.
Legal Fees
While liability insurance can cover legal fees if you are sued by the other party involved in the accident, it typically does not cover your own legal fees if you need to take legal action against another driver.
It is important to carefully review your insurance policy to understand the specific exclusions and limitations of your liability coverage. The coverage limits you select will also impact what is and is not covered.
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Frequently asked questions
Liability insurance covers the cost of other people's injuries and property damage if you're at fault in an accident. It includes bodily injury liability, which covers the victim's lost wages and medical bills, and property damage liability, which covers repair costs for their vehicle or stationary objects like their home or fence.
If you're at fault for an accident, the other driver will file a claim with your liability insurance policy to cover their bodily injury and property damage expenses. Liability insurance also covers your legal fees if you are sued due to the incident.
There are two main types of liability car insurance: bodily injury liability and property damage liability insurance. Bodily injury liability covers the other driver's medical expenses, while property damage liability covers the cost of repairing their vehicle or property.
You need enough liability insurance to cover your net worth. This means having coverage equal to the value of your assets and all your money, minus your debt, to protect yourself financially in case of a serious accident.
Nearly every state requires some form of liability coverage. The minimum amount of liability coverage you need to carry varies by state, but it's a good idea to purchase higher coverage limits than your state requires to adequately protect yourself.
