Auto Liability Insurance: Understanding Multiple Payouts

Liability car insurance is a type of insurance that covers damage and injuries caused by the policyholder to others in an accident. It is the foundation of a good car insurance policy and is required in most states. While liability insurance is typically the most expensive portion of a policy, it is also a coverage that you don't want to skimp on. If you don't buy enough liability coverage, you could be setting yourself up for financial disaster if your car insurance can't cover all the bills from an accident you've caused.

How much liability insurance should I buy?

Liability insurance is a vital component of your auto insurance coverage. It is required in most states and is typically the most expensive part of a policy. It's also not a component you want to skimp on. If you don't purchase enough liability coverage, you risk financial ruin if your car insurance is unable to cover all of the expenses incurred in a car accident you caused.

Liability insurance covers the costs of others when you are at fault for a car accident that causes bodily injury or property damage. It also covers legal-related costs if you are sued as a result of a car accident. This includes your legal defence and any judgments or settlements that arise from a lawsuit.

Liability car insurance is divided into two types:

• Bodily Injury (BI) Liability Coverage: This covers medical expenses and lost wages for individuals in another vehicle if you are at fault for the crash.
• Property Damage (PD) Liability Coverage: This covers property damage caused by an accident you are responsible for.

Liability car insurance has coverage limits, which is the maximum amount your insurer will pay out for bodily injury and/or property damage to others if you are at fault in a car accident. Most states require a minimum level of liability coverage, but it is usually not enough to adequately protect you if you are in a crash.

The coverage limits are typically displayed as a series of three numbers, such as 15/30/5. The first two numbers refer to bodily injury coverage, while the third number refers to property damage coverage. For example:

• 15 = $15,000 of bodily injury/death coverage for one person per accident
• 30 = $30,000 of bodily injury/death coverage for multiple people per accident
• 5 = $5,000 of property damage coverage per accident

While the minimum coverage required by your state is important to know, it may not be sufficient for your needs. A good rule of thumb is to purchase enough liability insurance to cover what you could lose in a lawsuit, based on your assets. If you own a home and have savings, you will likely want to buy liability insurance that exceeds your state's minimum requirement.

Consider the following when determining how much liability insurance to purchase:

• Determine how much liability insurance you need: Assess your state's minimum requirements and your specific needs. For example, if you live in Texas, the state minimums are 30/60/25, which may not be enough to protect your assets.
• Figure out how much you have to lose in a lawsuit: If you have substantial assets, such as a home and savings, you will want to ensure you have enough liability coverage to protect them in the event of a substantial damage or injury claim.
• Look for ways to maximise liability insurance while saving in other areas: Instead of skimping on liability insurance, consider saving money in other areas of your policy, such as by increasing your deductible on collision and comprehensive insurance.

To ensure you have adequate coverage, consider purchasing higher liability limits, such as 100/300/100 or higher. You may also want to consider purchasing an umbrella insurance policy, which provides additional liability coverage of $1 million or more. This can provide extra protection if you have significant assets and want to ensure you are covered in the event of a costly accident or lawsuit.

What does liability insurance cover?

Liability insurance is a crucial aspect of any comprehensive car insurance policy, providing financial protection in the event of an accident. It covers the costs associated with property damage and bodily injuries caused to another person when you are at fault in an accident. This type of insurance is required by most states in the US to legally drive a vehicle, with each state mandating minimum coverage amounts for bodily injury and property damage liability.

Liability insurance for vehicles typically includes two types of coverage: property damage and bodily injury. Property damage liability coverage pays for repairs to the other driver's vehicle, rental vehicles while their car is being repaired, damage to buildings, fences, or other structures, and damage to personal property such as electronics or belongings inside the vehicle. It also covers legal fees if you are sued for property damage. Bodily injury liability coverage, on the other hand, takes care of medical bills and lost wages for people in another vehicle if you are at fault for the crash. It may also cover legal fees if the injured party files a lawsuit.

The coverage limits for liability insurance are usually expressed as a series of three numbers, such as 15/30/5 or 25/50/10. The first two numbers represent the maximum coverage for bodily injuries per person and per accident, respectively, while the third number indicates the coverage for property damage per accident. For example, a policy with limits of 15/30/5 would provide $15,000 for bodily injury/death coverage for one person, $30,000 for bodily injuries to multiple people, and $5,000 for property damage. It is recommended to opt for higher coverage limits to ensure adequate protection.

It is important to note that liability insurance does not cover damages to your own property or injuries you sustain in an accident. Instead, it is designed to protect you from financial liability for damages caused to others. Collision coverage and comprehensive coverage are separate types of insurance that can be added to your policy to cover these scenarios.

What liability auto insurance doesn't cover

Liability auto insurance covers bodily injury and property damage to others in the event that you are at fault in a car accident. However, there are certain instances where liability insurance does not apply. Here are some scenarios where liability auto insurance will not cover you:

• Repairs to your own vehicle: Liability insurance does not cover the cost of repairing or replacing your own vehicle. This includes both collision and comprehensive insurance claims. Collision insurance covers the cost of repairs to your vehicle, regardless of who is at fault in an accident. Comprehensive insurance covers the cost of repairing or replacing your vehicle due to events such as floods, fires, vandalism, or car theft.
• Medical expenses for yourself or your passengers: Liability insurance does not cover your own medical expenses or those of your passengers. This includes medical bills, lost wages, and other expenses related to the accident. To ensure coverage for yourself and your passengers, you may consider additional insurance options such as personal injury protection or MedPay.
• Damage caused by uninsured or underinsured motorists: If you are in an accident caused by a driver without liability insurance or with insufficient liability coverage, their liability insurance will not cover your damages. In such cases, you may need to rely on your own insurance policy or seek legal action to recover compensation.
• Damage to your vehicle caused by natural disasters: Liability insurance does not cover damage to your vehicle caused by natural disasters such as floods, fires, or falling objects. Comprehensive insurance is typically required to cover these types of events.
• Theft of your vehicle: Liability insurance does not cover the replacement of your vehicle if it is stolen. Comprehensive insurance is designed to provide coverage for car theft.

It is important to carefully review your insurance policy to understand the specific coverages and exclusions. By understanding what is not covered by liability insurance, you can make informed decisions about additional insurance options to ensure adequate protection.

How much liability coverage costs

The cost of liability insurance is based on several factors, including your driving history, the amount of coverage you buy, your age, location, and vehicle type, among other things.

The national average car insurance cost of minimum car insurance, which typically includes liability auto insurance and other state-mandated coverage, is $488 per year, according to NerdWallet's June 2024 rate analysis. This rate goes up to $725 per year, on average, if you have an at-fault accident on your record. For drivers with a recent DUI or DWI, minimum coverage liability insurance costs $919, on average.

The average cost of car insurance ranges from $79.83 to $157.27 per month for a liability-only policy. In low-cost states, the average is $79.83 per month, in medium-cost states, it's $105.36, and in high-cost states, it's $157.27.

The average rate for liability car insurance is $2,160 a year, or $180 a month. This average varies depending on the state you live in and other factors. For example, Wyoming has the lowest average liability-only policy cost in the US at $25 per month or $303 per year, while New York has the most expensive liability insurance, with rates that average $208 per month or $2,490 per year.

Farm Bureau offers the cheapest liability car insurance for most drivers in 2024, at rates of just $31 per month or $368 per year on average. The next cheapest liability auto insurance coverage often comes from USAA, which charges an average of $39 per month or $471 per year.

Liability-only car insurance doesn’t cover damage to your own vehicle in accidents you cause or damage from theft, vandalism, or environmental causes. Full-coverage car insurance often costs 60% more than liability-only car insurance.

Liability insurance is generally the cheapest car insurance coverage because it only covers the cost of bodily injuries and property damage to another party if you’re at fault for an accident. It doesn’t cover damages to your vehicle or costs associated with your injuries.

How much liability car insurance do I need?

Liability car insurance is a legal requirement in most states and is usually the most expensive portion of a policy. It covers damage and injuries you cause to others in an accident. It also covers your legal defence and any settlements or judgments if you're sued because of an accident.

The most common minimum liability limits are $25,000 per person and $50,000 per accident for bodily injury and $25,000 for property damage. However, your state's requirements may be higher or lower, so it's important to check. For example, Texas state minimums are $30,000 in bodily injury coverage per person per accident, $60,000 in bodily injury coverage per accident, and $25,000 in property damage coverage per accident.

You should consider buying more liability coverage than the minimum required by your state to ensure you're not left paying the difference. It's also a good idea to have enough liability coverage to protect your assets in case you're liable in an accident. You can calculate your net worth by using the following equation:

> Value of home + value of cars + savings + investments − debt = net worth

Your net worth is the sum of your primary assets (the value of your home, vehicles, savings, and investments) minus your debts.

If you have a lot of assets, you may want to consider purchasing an umbrella insurance policy, which provides additional liability coverage of $1 million or more.

How Much Liability Coverage Costs

The cost of liability insurance is based on several factors, including your driving history, the amount of coverage you buy, and other factors that vary by state and company, such as gender, marital status, occupation, and credit. The national average cost of minimum car insurance, which typically includes liability auto insurance and other state-mandated coverage, is $488 per year. This rate increases to $725 per year if you have an at-fault accident on your record.

Frequently asked questions