Auto Insurance: Choosing The Right Coverage Limits

The amount of auto insurance coverage you need depends on several factors, including your state's legal requirements, your net worth, and your ability to pay for damages and medical expenses in the event of an accident.

Most states require bodily injury liability insurance and property damage liability insurance. These cover medical treatment, rehabilitation, funeral costs, and property damage expenses incurred by your passengers, other drivers, their passengers, and even injured pedestrians. The minimum coverage limits vary by state but are generally too low to protect the assets of most motorists. Experts recommend purchasing at least $100,000 per person and $300,000 per accident in bodily injury liability coverage and $100,000 per accident in property damage liability coverage.

In addition to liability coverage, you may also want to consider additional types of auto insurance, such as personal injury protection (PIP), uninsured/underinsured motorist coverage, collision coverage, and comprehensive coverage. These coverages can help protect you financially in the event of an accident, regardless of who is at fault.

When determining how much auto insurance coverage you need, it's important to consider your financial situation and the potential costs associated with an accident. It's generally recommended to have enough coverage to protect your assets and avoid being sued.

Liability insurance: how much do you need?

Liability insurance is a type of auto insurance that covers damage and injuries you cause to others in an accident. It is required in most states and is usually the most expensive portion of a policy. It is recommended to have at least $50,000 in bodily injury liability car insurance coverage in most states, along with at least $25,000 in property damage liability insurance. However, the specific requirements vary by state, so it is important to check the laws in your state.

Liability insurance has two main components: bodily injury liability coverage and property damage liability coverage. Bodily injury liability coverage pays for other people's medical costs when they are injured in a traffic-related accident you cause, including medical bills, pain and suffering, lost wages, and funeral costs. Property damage liability coverage pays for damage to other people's property after a traffic-related accident you cause, including cars, fences, buildings, and government infrastructure.

The amount of liability insurance you need depends on your specific situation. As a general rule, you should have enough liability insurance to cover your net worth, which includes the value of your cash, investments, and other assets, minus your debt. This will protect you financially in case of a serious car accident or lawsuit.

In addition to liability insurance, there are other types of auto insurance you may want to consider, such as collision insurance, comprehensive insurance, uninsured/underinsured motorist coverage, personal injury protection, and medical payments coverage. These additional types of insurance can provide coverage for your own vehicle and medical expenses, as well as protection in the event of an accident with an uninsured or underinsured driver.

When determining how much liability insurance you need, it is important to consider your state's minimum requirements, your net worth, and the potential costs of an accident. It is generally recommended to have higher limits than the state minimum to ensure you are adequately protected.

What is covered by liability insurance?

Liability insurance covers the costs of damages to other people and their property in the event that you are found at fault in an accident. It is a legal requirement to have a certain amount of liability insurance in almost every state.

Liability insurance consists of two types of auto coverage:

Bodily Injury Liability

This covers the medical expenses of the other party if you are found at fault in an accident. It may also cover lost wages and/or legal fees if the injured party files a lawsuit. This can include medical bills, pain and suffering, lost wages, and even funeral costs.

Property Damage Liability

This covers damages to other people's property. This can include damage to cars, buildings, fences, or other structures. It may also cover other people's personal belongings and the cost of a rental car for the other driver.

Liability insurance will not cover your own medical bills or vehicular damage. For this, you will need additional types of insurance such as personal injury protection or health insurance, as well as collision insurance.

What is not covered by liability insurance?

Liability insurance is an insurance product that provides protection against claims resulting from injuries and damage to other people or property. However, it does not cover intentional damage, contractual liabilities, or criminal prosecution.

Liability insurance covers two main components: bodily injury liability and property damage liability.

Bodily Injury Liability

Bodily injury liability covers the costs related to injuries or death caused by the policyholder or other drivers covered by the policy to another person in an accident. This includes medical expenses, pain and suffering, and loss of income. It may also cover legal fees if the policyholder is sued.

Property Damage Liability

Property damage liability covers the costs associated with damage caused by the policyholder or someone driving the insured vehicle to someone else's property. This includes damage to other vehicles, buildings, utility poles, fences, and any other property.

What Liability Insurance Doesn't Cover

Liability insurance does not cover the policyholder's injuries or damage to their vehicle. These are covered under different parts of an auto insurance policy, such as collision and comprehensive coverage.

What is full coverage insurance?

"Full coverage" car insurance is a general term used to describe a policy that includes certain coverages to protect policyholders against various circumstances. While there is no consensus on what "full coverage" means, it typically refers to carrying both liability and physical damage coverages (comprehensive and collision), in addition to anything else your state mandates.

Liability coverage is required in nearly every state and is included in "full coverage" policies. It covers damages or injuries you cause to another vehicle or person, up to a certain limit. However, liability coverage does not cover your own personal expenses, such as repairs to your vehicle after an accident.

To protect your own vehicle, you would need comprehensive and collision coverages, which are considered part of a "full coverage" policy. Comprehensive coverage pays for damage to your car that is not strictly related to driving, such as weather, vandalism, fire, or hitting an animal. Collision coverage, on the other hand, pays for damage to your vehicle after a crash with another vehicle or structure, regardless of fault.

While "full coverage" offers more protection than a liability-only policy, it is important to note that no insurer can sell a policy where you are 100% covered in all situations. The cost of "full coverage" insurance will depend on various factors, including your location, driving history, the year, make, and model of your car, the coverage limits, and your deductible amount.

What are liability insurance limits?

Liability insurance covers the costs of other people's expenses if you cause an accident. This includes bodily injury liability coverage, which pays other people's medical costs, and property damage liability coverage, which pays for damage to other people's property.

Liability insurance only pays up to the maximum amounts, or "limits", specified in your policy. If the damage from an accident exceeds those limits, you will be responsible for paying for the rest of the claim out of pocket.

Most auto policies have three main liability limits, which are often displayed as three numbers on your policy. For example, "25/50/25" would mean:

• $25,000 maximum for bodily injury liability per person.
• $50,000 maximum for bodily injury liability per accident.
• $25,000 maximum for property damage liability per accident.

Some insurers offer an alternative called "combined single limit" liability, which is one larger liability limit to cover both bodily injury and property damage. This type of coverage is generally more flexible and offers more financial protection than split limit coverage, but it is also more expensive.

The amount of liability coverage you need depends on your net worth. As a general rule, you should have enough liability insurance to cover your net worth, which is equal to the value of all the cash and investments you have, plus the value of the things you own, minus your debt. This will help protect your savings and other financial assets in the event of an accident.

Nearly every state in the US requires at least some liability coverage, except for rural parts of Alaska and Virginia, where residents can waive liability coverage by paying the state $500 annually.

Frequently asked questions