Jane Dotson
Liability insurance is a requirement in most states and covers both property damage and bodily injury. It is important to know your state's requirements and your specific situation to determine how much car insurance you need. The minimum liability limits vary by state, with the average across the United States being $90,000, including limits of around $18,000 for property damage, $26,000 for bodily injury per person, and $52,000 per accident. However, it is recommended to get higher liability limits if you can afford it, such as $500,0000 for each component - bodily injury and property damage. This will ensure that you have sufficient coverage in the event of an accident, as medical bills and car repairs can be expensive.
| Characteristics | Values |
|---|---|
| Bodily injury liability per person | $25,000 |
| Bodily injury liability per accident | $50,000 |
| Property damage liability per accident | $25,000 |
| Bodily injury liability limit per person | $100,000 |
| Bodily injury liability limit per accident | $300,000 |
| Property damage liability limit per accident | $100,000 |
| Bodily injury per person minimum limit | $15,000 |
| Bodily injury per accident minimum limit | $30,000 |
| Property damage minimum limit | $5,000 |
| Total liability minimum limit | $50,000 |
| Average annual cost of liability coverage | $650.35 |
What You'll Learn
What are the different types of liability insurance?
Liability insurance is a critical aspect of protecting your business or yourself from financial losses and reputational harm resulting from claims and lawsuits. While the specific liability limits you should carry on your auto insurance depend on various factors, understanding the different types of liability insurance is crucial. Here is a detailed overview:
General Liability Insurance (GL)
GL insurance, also known as Commercial General Liability (CGL) or Business Liability Insurance (BL), is a fundamental type of coverage for businesses. It provides protection against claims of bodily injury or property damage caused by your business. GL insurance also covers reputational harm or errors in advertising, such as libel, slander, false arrest, or copyright infringement. It's important to note that GL insurance does not cover property damage to your business or your employee's property.
Professional Liability Insurance (PL)
PL insurance, also known as Errors and Omissions Insurance (E&O), is essential for those who work in professional services, including accountants, consultants, lawyers, and physicians. It provides coverage for claims arising from errors, omissions, negligent acts, and misrepresentation. PL insurance typically covers attorney fees, court costs, administrative costs, and settlements or judgments against the insured.
Employer's Liability Insurance
While Workers' Compensation Insurance covers medical expenses and lost wages for work-related injuries and illnesses, it doesn't shield your business from lawsuits. That's where Employer's Liability Insurance comes in. It protects your business by covering legal costs and compensation if an employee sues for a work-related issue. This type of insurance is particularly important for industries that are exempt from Workers' Compensation Insurance requirements.
Wrap-up Liability Insurance
Wrap-up Liability Insurance is specifically designed for construction projects. It provides coverage for multiple parties involved in a construction project, including contractors, property owners, subcontractors, architects, developers, and engineers, under a single policy. This type of insurance simplifies coverage issues and ensures that the general contractor doesn't have to rely solely on each party's individual GL insurance. Wrap-up policies can be tailored to individual projects, offering greater flexibility.
Third-party or Auto Liability Insurance
For businesses with employees operating commercial vehicles, Third-party or Auto Liability Insurance is crucial. It protects your business from financial losses in the event of accidents, including fatalities, injuries, property damage, and subsequent lawsuits. This type of insurance is legally required for all vehicles and can safeguard your business from costly consequences.
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How much liability insurance should I have?
The amount of liability insurance you should have depends on your state's requirements, your budget, and your personal needs. It is recommended that you carry the highest amount of liability coverage you can reasonably afford, with $100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability being the best coverage level for most drivers.
State Minimum Requirements
Nearly every state in the US mandates drivers to have a minimum amount of liability coverage, which covers vehicle and property damage or injuries to others in accidents caused by the policyholder. However, these state minimums are often not enough to protect you financially in the event of an accident. For example, California and Pennsylvania only require a minimum of $5,000 for property damage coverage.
Budget and Personal Needs
Your budget and personal needs will also determine how much liability insurance you should have. If you drive an old or low-value car, you may only need liability-only coverage since the cost of repairing or replacing your car might not justify the higher premium of full coverage. Similarly, if you can easily replace your car without financial strain, liability-only insurance could be sufficient.
On the other hand, if you have a new or expensive car, or want extra peace of mind, you may want to consider full coverage insurance, which includes liability, collision, and comprehensive coverage. Collision coverage pays to repair or replace your car after a crash, while comprehensive coverage pays for other issues like theft or weather damage.
If you still owe money on your car or are leasing it, full coverage insurance is recommended. In this case, you may also want to consider gap insurance, which covers the difference between the value of your car and the balance of your car loan if your vehicle is totaled.
Other Considerations
In addition to liability, collision, and comprehensive coverage, there are several other types of optional coverage you may want to consider, depending on your specific needs and situation. These include:
- Uninsured/underinsured motorist coverage
- Medical payments coverage
- Roadside assistance
- Umbrella insurance
- Accident forgiveness
- Non-owner insurance
- Classic car insurance
- Custom equipment coverage
- Original equipment manufacturer (OEM) endorsement
- Forgiveness coverage
- Glass coverage
- Rental reimbursement
- Pay-per-mile coverage
- Rideshare insurance
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What does liability insurance not cover?
Liability insurance is a type of insurance that provides protection against claims resulting from injuries and damage to other people or property. It covers the legal costs and payouts for which the insured party is found liable. However, it is important to note that there are certain exclusions to what liability insurance covers.
Liability insurance does not cover intentional damage or contractual liabilities. It also does not cover criminal prosecution or any damages resulting from intentional or criminal acts, even if the insured party is found legally responsible. Additionally, liability insurance does not cover personal injuries or damages sustained by the insured party or their family members. For example, if you are at fault for a crash, your own medical expenses and car repairs will not be covered by liability insurance.
In the context of auto insurance, liability insurance covers bodily injury liability and property damage liability. Bodily injury liability covers the medical costs, pain and suffering, lost wages, and funeral costs of other people involved in a traffic-related accident caused by the insured. Property damage liability, on the other hand, covers the cost of repairing or replacing damaged property, such as cars, fences, buildings, or government infrastructure.
It is worth noting that liability insurance does not include a deductible, so once a claim is filed and approved, the insurance provider will begin liability payouts up to the selected limit. However, if the damages exceed the limit, the insured will be responsible for the additional costs.
To cover personal injuries, repairs, or replacements for the insured's own vehicle, additional types of insurance such as personal injury protection, health insurance, or collision insurance are needed.
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What is the average cost of liability insurance?
The average cost of liability insurance varies depending on the type of insurance. For example, the average cost of liability car insurance is $180 a month, whereas the average cost of general liability insurance for small businesses is $42 a month.
The cost of liability insurance also depends on the state in which you reside. For example, the national average cost of minimum car insurance, which includes liability auto insurance, is $497 per year, but this rate goes up to $744 per year for drivers with an at-fault accident on their record. In contrast, liability insurance costs an average of $650.35 per year.
The cost of liability insurance is also influenced by factors such as your age, your personal driving history, the make and model of your car, and, in some states, your credit score.
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What are the pros and cons of higher liability limits?
The pros and cons of higher liability limits in auto insurance.
The pros of higher liability limits:
- Higher liability limits can provide more financial protection in the event of an accident. This can be especially important if you have a high net worth, as it can help protect your assets from potential lawsuits.
- Higher limits can give you peace of mind and reduce financial stress after an accident, knowing that you have sufficient coverage to pay for damages and injuries you may have caused.
- Higher liability limits can also benefit others involved in an accident by ensuring they receive adequate compensation for their injuries or property damage.
The cons of higher liability limits:
- One of the main disadvantages of higher liability limits is the increased cost of insurance. Higher limits typically mean higher insurance premiums, which may be a significant expense for some individuals.
- While higher liability limits provide greater financial protection, there is still a limit to the coverage. If the cost of damages or injuries exceeds your policy limits, you may still be held personally responsible for the remaining amount.
- Higher liability limits may not be necessary for everyone, especially those with a low net worth. In some cases, it may be more cost-effective to opt for lower limits or the state-mandated minimum coverage.
When deciding on the liability limits for your auto insurance, it is important to carefully consider your individual circumstances, including your financial situation and the level of risk you are comfortable with. It may be helpful to consult with an insurance professional to determine the most appropriate coverage for your needs.
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Frequently asked questions
The minimum liability insurance requirements vary by state. While New Hampshire and Virginia have no auto insurance requirements, Florida and New Jersey only require property damage coverage and not bodily injury coverage.
You should consider your net worth, how much you drive, and your state's minimum requirements when deciding on your liability limits. If you don't have enough liability coverage, you could face a lawsuit.
It is recommended that you carry liability coverage of $100,000 per person and $300,000 per accident for bodily injury, and $100,000 for property damage. This is often referred to as 100/300/100 coverage.
If you can't afford the recommended liability limits, you should get as much coverage as you can reasonably afford. Aim for at least 50/100/50 coverage if 100/300/100 is out of your budget.
