Auto Insurance: Understanding Average Liability Coverage

Liability insurance is a type of coverage that is required by nearly every state in the US. It protects you financially if you are responsible for someone else's injuries or property damage. The minimum amount of car insurance you need is typically state-required liability coverage, which allows you to pay for some or all injuries and damages you are liable for in an accident. The most commonly required liability limits are $25,000 for bodily injury per person, $50,000 for total bodily injury per accident, and $25,000 for property damage per accident. However, individual state requirements vary, and your state may mandate higher or lower limits.

What does liability insurance cover?

Liability insurance coverage protects you financially if you're found to be at fault in an accident and are responsible for someone else's injuries or property damage. It is a standard feature of most vehicle and property insurance policies, including auto and homeowners insurance.

Liability insurance actually consists of two types of auto coverage: bodily injury liability protection and property damage liability protection.

Bodily Injury Liability Protection

This covers the medical expenses of the other party if you are found at fault in an accident. In some circumstances, it may even cover lost wages and/or legal fees if the injured party files a lawsuit.

Property Damage Liability Protection

This covers damages to property resulting from a covered accident in which you’re at fault. It may cover the other party’s vehicle repair or replacement costs, as well as other property that may have been damaged in the accident, such as fences, structures, and phone poles.

The minimum liability limits for each of these coverage types vary depending on the state. For example, in Colorado, the state requires a minimum coverage of $25,000 for bodily injury or death to any one person in an accident, $50,000 for bodily injury or death to all persons in any one accident, and $15,000 for property damage in any one accident.

It is important to note that liability insurance does not cover your own injuries or damage to your own property. For that, you would need to purchase additional insurance such as comprehensive and/or collision coverage.

How much liability coverage do I need?

The amount of liability coverage you need depends on several factors. Firstly, it's important to understand the minimum requirements of your state or lender. While liability insurance is required in almost every state, the minimum amount of coverage varies. For example, in Colorado, the state mandates a minimum coverage of $25,000 for bodily injury or death to any one person in an accident, $50,000 for bodily injury or death to all persons in any one accident, and $15,000 for property damage in any one accident. If you're leasing or financing your car, your lender may require you to carry liability coverage above your state's minimum.

Secondly, it's recommended to carry more liability coverage than the legal minimum to protect yourself financially in case of an accident. You should consider your net worth, which includes the value of your home, vehicles, savings, and investments, and choose a liability limit that matches or exceeds this amount. This ensures that your assets are well-protected if you're found legally responsible for someone else's injuries or property damage.

For instance, if your net worth is $90,000, you may want to opt for a car insurance policy with liability limits of $50,000 for bodily injury per person, $100,000 in total bodily injury per accident, and $50,000 for property damage per accident.

Additionally, it's worth considering the likelihood and potential cost of accidents in your state. For example, states with higher traffic congestion or accident rates may warrant higher liability coverage.

Finally, if you own a home, have substantial savings, or possess other valuable assets, it's advisable to increase your liability coverage accordingly. This ensures that you're adequately protected in the event of a significant accident or lawsuit.

What does auto liability insurance include?

Auto liability insurance includes two types of coverages: property damage and bodily injury.

Property Damage Coverage

Property damage coverage insures against damage to another person's property caused by your vehicle. This includes:

• Repairs to the other driver's vehicle
• A rental vehicle while the other person's car is being repaired
• Damage to buildings, fences, or other structures
• Damage to personal property, such as electronics or belongings inside a vehicle
• Legal fees if you're sued for property damage
• Other miscellaneous costs related to the property damage incident

Bodily Injury Coverage

Bodily injury coverage provides payment for injuries sustained by another person because of the accident. This can include:

• Legal fees if you're sued for injuries you caused
• Medical bills
• Funeral expenses
• Lost wages
• Pain and suffering

The required minimum coverage limits vary by state, but it's a good idea to purchase higher coverage limits than your state requires. If the damages you cause exceed the liability limits you have chosen, you could find yourself personally liable for all of the costs that exceed the amount your insurance policy can pay.

What does liability insurance not cover?

Liability insurance is a crucial aspect of financial protection for individuals and businesses alike. While it provides invaluable coverage in the event of accidents, injuries, or property damage, it's important to recognise the limitations of liability insurance. Here are some key areas that liability insurance typically does not cover:

Commercial Auto Accidents

Liability insurance does not usually extend to commercial auto accidents. If you or your employees cause a vehicular accident while driving for work, a separate commercial auto insurance policy is necessary to cover the costs of damages. This distinction is important, as many states have specific requirements for auto coverage, including bodily injury liability and property damage liability.

Employee Injuries or Illnesses

Injuries or illnesses sustained by employees in the course of their work are generally not covered by liability insurance. Instead, workers' compensation insurance is designed to provide benefits to employees, covering their medical bills and ongoing care expenses in the event of a work-related injury or illness.

Damage to Your Own Business Property

Liability insurance primarily focuses on third-party claims and typically excludes damage to your own business property. To safeguard your owned or rented business property and equipment, a separate commercial property insurance policy is required.

Professional Mistakes and Errors

Liability insurance does not typically cover professional mistakes, errors, or breach of contract. For professionals offering services such as accounting, consulting, or legal advice, professional liability insurance (also known as errors and omissions insurance) is essential to protect against lawsuits arising from unsatisfactory work or faulty advice.

Employee Discrimination Lawsuits

In the event of employee claims related to harassment, discrimination, or wrongful termination, liability insurance may not provide the necessary coverage. Employment practices liability insurance (EPLI) is specifically designed to address these types of legal claims and is recommended for businesses in retail, food services, manufacturing, and healthcare.

Intentional Acts or Wrongdoing

It's important to note that liability insurance generally does not cover intentional acts or wrongdoing committed by you or your employees. This exclusion applies to both intentional damage to property and intentional injuries.

High-Cost Claims

Liability insurance typically has coverage limits, and extremely high-cost claims may exceed these limits. In such cases, a commercial umbrella insurance policy can provide additional coverage, extending the limits of your liability insurance.

How much does liability coverage cost?

The cost of liability insurance is based on several factors, including your driving history, the amount of coverage you buy, your age, gender, marital status, credit score (where this is permitted), and occupation.

According to NerdWallet, the national average cost of minimum car insurance, which typically includes liability auto insurance and other state-mandated coverage, is $497 per year. This rate goes up to $744 per year, on average, if you have an at-fault accident on your record. For drivers who have a recent DUI, minimum coverage liability insurance costs $938, on average.

Car insurance rates vary widely by state. The average cost of liability insurance in New York, the most expensive state, is $2,221 per year. In Wyoming, the cheapest state, the average cost is $303 per year.

Farm Bureau offers the cheapest liability car insurance for most drivers in 2024, at rates of $368 per year on average. USAA, Auto-Owners, and Country Financial are also among the most affordable providers of liability car insurance.

The cheapest liability car insurance is usually the minimum coverage level your state requires for you to legally drive. Each state sets its own requirements, so the cost of liability-only insurance varies from state to state.

Frequently asked questions