Understanding Residual Liability Insurance In Auto Policies

Residual liability insurance is a type of insurance that extends the financial protection provided by no-fault insurance. No-fault insurance laws exist in 12 US states and Puerto Rico, and they are designed to remove the need for lawsuits, with each party receiving payment for injuries from their own insurance company, regardless of who is at fault. However, no-fault insurance does not protect against lawsuits when injuries from an accident exceed the no-fault thresholds. This is where residual liability insurance comes in, offering increased protection in these instances.

What does residual liability insurance cover?

Residual liability insurance is a type of auto insurance coverage that is mandatory in Michigan. It is also known as bodily injury liability insurance and is required in most states to legally drive a vehicle. This type of insurance covers the cost of medical bills and property damage that the policyholder becomes legally responsible for in the event of a car accident.

Residual liability insurance is broken down into two parts: bodily injury liability and property damage liability. Bodily injury liability covers the cost of injuries sustained by another person in an accident, including their medical expenses, rehabilitation, lost wages, and legal fees if the policyholder is sued. Property damage liability, on the other hand, covers the cost of repairing or replacing damaged property, such as the other driver's vehicle, buildings, fences, or other structures, as well as personal property inside the vehicle.

The coverage limits for residual liability insurance are typically expressed as three numbers, such as 25/50/10, indicating the maximum coverage for bodily injury per person, bodily injury per accident, and property damage per accident, respectively. It's important to choose appropriate coverage limits to ensure adequate financial protection in the event of a significant accident.

In Michigan, the minimum required coverage limits for residual liability insurance are $250,000 for bodily injury to or death of one person in any accident and $500,000 for two or more persons in any accident. However, drivers can choose to purchase lower limits of $50,000 and $100,000, respectively, by signing a specific form approved by the Michigan Insurance Commissioner.

What is not covered by residual liability insurance?

Residual liability insurance, also known as bodily injury liability insurance, is a type of auto insurance that covers the costs when the policyholder is responsible for a car accident. This includes the injured party's medical bills, pain and suffering compensation, lost wages, and the cost to repair their car or other property.

However, there are some important limitations to what residual liability insurance covers. Here are the key things that are typically not covered by residual liability insurance:

• Damage to the policyholder's own vehicle: Residual liability insurance does not cover repairs or replacement of the policyholder's own car in the event of an accident. To protect against this, additional coverage such as collision coverage or comprehensive insurance may be needed.
• Policyholder's own injuries: Residual liability insurance does not cover the policyholder's own medical expenses or lost wages resulting from an accident. This type of coverage is typically provided by personal injury protection or medical payments coverage.
• Uninsured/underinsured motorist coverage: If the policyholder is in an accident with a driver who does not have insurance or does not have sufficient insurance, residual liability insurance will not cover the costs. Uninsured/underinsured motorist coverage is a separate type of insurance that can provide protection in these situations.
• Intentional damage: Residual liability insurance typically does not cover intentional or criminal acts by the policyholder, even if they are found legally responsible.
• Contractual liabilities: This type of insurance generally does not cover liabilities arising from contracts.
• Errors and omissions: In the case of commercial liability insurance, errors and omissions made by the insured may not be covered. This includes negligent professional services, failure to perform professional duties, or errors in judgement.

It is important to carefully review the terms and conditions of any insurance policy to understand the specific exclusions and limitations of coverage.

How much does residual liability insurance cost?

Residual liability insurance, also known as bodily injury liability insurance, is a type of auto insurance that covers the cost of medical bills and property damage for which the policyholder is responsible after a car accident. This type of insurance is required by nearly every state in order to drive.

The cost of residual liability insurance as part of an auto insurance policy depends on various factors, such as the amount of coverage selected. Higher coverage limits will usually result in a higher premium. Additionally, the cost can vary depending on the state, as each state has its own minimum coverage requirements.

In Michigan, for example, the law requires bodily injury liability insurance with limits of at least $250,000 for injuries or death to one person and $500,000 for two or more persons in any single accident. However, drivers can choose to purchase lower limits of $50,000 and $100,000, respectively, by signing a specific form approved by the Michigan Insurance Commissioner.

According to Policygenius, the cost of minimum coverage liability car insurance is around $51 per month, but rates can differ depending on the insurance company and other factors. On the other hand, NerdWallet's rate analysis found that the national average annual cost of minimum required coverage is $549 for a good driver with good credit. Their analysis also revealed that increasing the liability insurance amount by $50,000 only raises the annual premium by $189.

It is important to note that liability insurance does not cover damage to the policyholder's own vehicle or their own injuries after an accident. For that, additional coverages such as collision coverage and personal injury protection would be necessary.

Who needs residual liability insurance?

Residual liability insurance, also known as bodily injury liability insurance, is a type of auto insurance coverage that protects drivers in the event of a car accident that results in injuries or death. It is important to note that this type of insurance only covers the liability of the driver if they are at fault for the accident.

So, who needs residual liability insurance? In short, everyone who drives a vehicle. It is a legal requirement in most places and offers essential financial protection if you are involved in an accident. This type of insurance can cover the expenses of medical bills, long-term nursing care, and legal defence costs if you are sued due to your involvement in an accident.

While the specific requirements vary depending on your location, it is generally recommended to have higher coverage limits to ensure adequate protection. For example, in Michigan, the minimum requirements are $250,000 for injury or death to one person and $500,000 for two or more victims. However, attorneys recommend carrying coverage with limits of $500,000 to $1,000,000 to account for potential compensation and damages that exceed the policy limit.

It is worth noting that residual liability insurance does not cover damage to your own vehicle or your own injuries; separate coverage is required for those instances.

How does residual liability insurance work with no-fault insurance?

Residual liability insurance is a type of bodily injury liability insurance that covers the costs of pain and suffering, excess medical benefits, lost wages, and other economic damages that a driver owes to injured persons in an at-fault accident. This type of insurance is mandatory in no-fault states like Michigan, where personal injury protection (PIP) is also required.

In a no-fault state, each driver must file a claim with their own insurance company following an accident, regardless of who is at fault. No-fault insurance laws also restrict a person's ability to sue if they're injured in a car crash. Drivers in no-fault states may only be able to sue if their injuries or medical expenses meet a specific verbal or monetary threshold.

In Michigan, for example, the no-fault insurance law provides "residual liability" protection. If a driver is found legally at fault for a car accident, their no-fault policy will cover:

• $20,000 per person injured or killed in an accident
• $40,000 per accident in which more than one person is hurt or killed
• $10,000 per accident for property damage that occurs in another state

It's important to note that with a no-fault/PIP claim, policyholders cannot get compensation for their "pain and suffering" and other non-monetary damages stemming from the accident. However, if certain thresholds are met, they may be able to step outside of the no-fault system and file a third-party insurance claim or lawsuit against the at-fault driver, seeking compensation for pain and suffering, and other non-economic losses.

Frequently asked questions