Auto Insurance: Understanding Essential Liability Coverage Options

Liability insurance is a type of auto insurance that covers damage and injuries caused to others in an accident. It is the main mandated coverage and is required by nearly every state in the US. The minimum amount of liability insurance required varies by state, but it typically includes bodily injury liability and property damage liability. For example, in Texas, the minimum requirement is $30,000 of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. It is important to note that state minimums may not be sufficient to cover all damages and injuries in an accident. Therefore, it is recommended to purchase more liability coverage than the state-mandated minimum to avoid being left with out-of-pocket expenses. When deciding on the amount of liability coverage to purchase, individuals should consider their net worth, including the value of their home, vehicles, savings, and investments, and choose a coverage amount that adequately protects their assets.

What does liability insurance cover?

Liability insurance covers the costs of damage to other people's property and injuries to other people if you are found at fault in an accident. It does not cover damage to your own property or injuries to yourself.

Liability insurance is split into two types of coverage:

• Bodily injury liability protection: 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.
• Property damage liability protection: This covers damages to property resulting from a covered accident in which you are 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 street signs.

Liability insurance coverage limits vary depending on the state you live in and it is a good idea to choose a limit that matches or exceeds your total net worth.

What liability auto insurance doesn't cover

Liability auto insurance is an important form of coverage to have, as it is mandated in nearly every state. However, it is important to know that liability insurance does not cover everything.

Liability insurance does not cover the costs to repair your vehicle or your own medical expenses in the event of an accident. In other words, liability insurance will not cover any damages or injuries that you personally sustained. Instead, liability insurance covers the other driver's vehicle and their injuries.

To cover your own vehicle repairs and medical expenses, you will need to purchase additional coverage, such as collision coverage, comprehensive coverage, and medical payments coverage.

How much liability coverage do I need?

The amount of liability coverage you need depends on your state's minimum liability requirements, your budget, and your personal needs.

While liability coverage is mandatory in almost every state, the minimum amount varies. For example, in California, you need at least $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single car accident, and $5,000 for property damage. In Texas, the minimum liability coverage is $30,000 for injuries per person, up to a total of $60,000 per accident, and $25,000 for property damage.

Although liability coverage is essential, it may not be sufficient to protect you financially in the event of an accident. It is recommended that you purchase liability coverage that is higher than the state-mandated minimum. A good rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit if you are at fault in an accident. Consider your net worth, which includes the value of your home, vehicles, savings, and investments, minus your debts. You should aim to have enough liability coverage to protect your assets.

For instance, if your net worth is $90,000, a suitable car insurance policy might offer $50,000 for bodily injury per person, up to $100,000 in bodily injury total per accident, and $50,000 for property damage. This way, if you cause an accident, your insurance can cover the damages and injuries without leaving you with a significant financial burden.

In addition to liability coverage, you may also want to consider other types of auto insurance, such as comprehensive and collision coverage, medical payments coverage, and uninsured/underinsured motorist coverage, to ensure you have comprehensive protection.

How much does liability insurance cost?

The cost of liability insurance varies depending on several factors, such as the type of insurance, the state of residence, and individual circumstances. Here is a breakdown of the cost of liability insurance in different scenarios:

Liability Car Insurance:

Liability car insurance is mandatory in almost every state, with the exception of Virginia and specific parts of Alaska. The national average cost of minimum car insurance, which typically includes liability coverage, is $497 per year, according to NerdWallet's analysis. This rate increases to $744 per year for drivers with an at-fault accident on their record and $938 per year for those with a recent DUI. It is recommended to have at least $500,000 worth of liability coverage to adequately protect yourself.

General Liability Insurance for Small Businesses:

The cost of general liability insurance for small businesses can vary depending on factors such as industry, location, policy limits, and risk factors. On average, small businesses pay about $805 annually or $67 per month for general liability insurance. However, Insureon reports a lower average cost of $500 per year, with 29% of their small business customers paying less than $30 per month and 41% paying between $30 and $60 per month.

Full-Coverage Car Insurance:

Full-coverage car insurance typically includes liability, collision, and comprehensive insurance. It is more expensive than liability-only insurance, costing around 60% more on average. The national average cost of full-coverage car insurance is $1,342 per year, or about $112 per month.

Cheapest Liability-Only Car Insurance:

The cheapest liability-only car insurance is typically offered by Farm Bureau, with average rates of $368 per year. USAA and Erie Insurance also offer competitive rates, with USAA charging an average of $471 per year and Erie Insurance known for its affordable rates. The cost of liability-only insurance also varies by state, with Wyoming having the lowest average cost of $303 per year and New York having the highest at $2,221 per year.

What liability insurance doesn't cover

Auto liability insurance does not cover the policyholder's own injuries or property damage. It also does not cover the injuries or property damage of any passengers in the policyholder's vehicle. Instead, liability insurance covers the expenses of other people involved in an accident caused by the policyholder. This includes their medical costs, lost wages, and damage to their vehicles or other property.

Frequently asked questions