Imagine you’re driving to work and you rear-end a car. This happens all the time. In fact, it’s one of the most common types of accidents, making up 28% of all car crashes. A single car accident, even a minor one, can lead to expensive medical bills or repair costs. That’s why almost every state requires liability car insurance.
Liability coverage pays for car damages and injuries to other drivers following an accident. In this article, you’ll learn what liability insurance is and how it works. We’ll tell you:
- What it covers
- What it doesn’t cover
- How much it costs
- How much you need
- Frequently asked questions
What is Liability Car Insurance?
If you cause an accident, you’ll have to pay for damages or injuries to you and any other parties involved. Liability car insurance protects you from paying out of pocket when you’re at-fault.
Most states require some form of liability insurance coverage to drive. But the limits are very low. In many cases, the amount of liability coverage required won’t cover the costs of a serious accident. It’s up to you how much risk you want to be exposed to. Keep in mind that liability doesn’t pay for any damages to your own vehicle. It only covers the cost to repair other cars you damage. Collision coverage is what pays to fix your own car.
What Liability Car Insurance Covers
First, it is very important to understand what liability car insurance doesn’t cover. Knowing this will prevent any issues when making claims to your insurance company.
Liability doesn’t cover any physical injury or damage to your car. It only covers the other parties involved. Coverages like collision and personal injury protection (PIP) cover your own injuries or damages. But states don’t require it as they do with liability.
Liability insurance has two parts. The first covers property damage that you cause. And the second covers any bodily injuries that the other party suffers. Here’s a quick breakdown of each part of liability coverage:
Property Damage Liability
Property damage liability or PDL covers any property damage you cause. It only covers up to the limit that the liable driver purchases. Remember, your state will require you to have a certain amount (unless they don’t require any insurance). But the minimum amount may not be enough to cover the full extent of the damages. Types of property damage include:
- Another driver’s car
- Buildings or structures
- Streetlights or lampposts
- Damages to any other property because of an accident
- Any court costs in the event of a lawsuit for damages.
Bodily Injury Liability
Bodily injury liability or BIL covers any injuries or medical bills that the other passengers have. The amount that it covers will only be up to the limits on the liable driver’s policy. Below are what bodily injury liability covers:
- Any medical costs and potentially lost income of affected person (could be the other driver, a pedestrian, or possibly a passenger in your own car).
- Long term medical care required by the other party
- Funeral costs and pain and suffering if a death occurs because of the accident.
- Covers your own legal fees if the other party affected happens to file a lawsuit against you.
Most States Require Liability Insurance
Every state besides New Hampshire and Virginia requires some form of car insurance. Even in states that don’t require any, you’re still accountable for any damages you cause. Each state that requires car insurance sets minimum limits. This means that you’ll need to have a set amount of liability insurance depending on the state in which you live.
How to Read Insurance Coverage Limits
There are three common coverage limits that relate to liability insurance:
- Property damage limit. Max amount that the insurer will pay for damages.
- Bodily injury limit per person. Max amount your insurer will cover for a person’s injuries.
- Bodily injury limit per accident. Limit for the total amount the insurer pays for injuries.
The required limits for liability insurance are on a per person basis for bodily injury liability. Property damage liability limits are up to a total dollar amount of damages. For example, according to its Department of Motor Vehicles, California requires drivers to have:
- $15,000 for injury or death to a person
- $30,000 for injury or death to two or more people
- $5,000 for any damage to property
Often, you’ll see companies present car insurance limits as –/–/–. For the state of California example, it would look something like 15/30/5. Each number represents an amount in thousands of dollars’ worth of coverage.
Reasons for Requiring Liability Insurance
States require auto insurance for good reason. Without liability insurance, you and the other party would have to pay for damages yourself. Insurance protects each party from financial ruin. If you can’t pay for damages after an accident, the other party may sue you for your assets, such as:
- Savings accounts
- Houses or real estate
- Future pay checks and income
Besides covering car crash expenses, driving without insurance can land you in jail. You may also have to pay fines. Driving without insurance can cost you in a lot of ways. Carrying insurance will protect you and the other party from any disaster. That way you can both move on with your lives after the accident.
How Much Liability Car Insurance Should You Buy?
Most states require at least some amount of liability insurance. But that may not be enough. Often, the total cost of medical bills and damages will mount after an accident. Drivers may need to pay medical bills for months or even years in the wake of an accident. The general idea is to buy as much as you can afford. That way you’ll have as much protection as possible from having to use your own assets to pay for an accident.
49 states require liability insurance. The District of Columbia and Puerto Rico also require basic liability insurance. There’s no way around it. You’ll need to buy liability insurance before you can drive if you live in a state that requires it.
Note: Virginia requires liability insurance unless drivers register as uninsured driver. If you do this, you must pay an uninsured driver fee.
You’d have to pay out of pocket if your coverage doesn’t cover the total cost of damages. The state could revoke their license if the driver doesn’t pay the damages.
Max Out Your Liability Insurance Limits
It’s wise to try and max out your insurance coverage as much as possible because you can risk racking up large costs. Doing so would help you to avoid paying any money out of pocket after an accident.
Minimum car insurance limits usually don’t cover the total cost of an accident. Normally, minimum limits are the bare minimum form of car insurance available. You may also need other types of coverage to fit your needs. Be sure to speak with your agent about what types of insurance you should have on your policy.
Most insurance companies try to sell umbrella insurance policies, but what are they? Umbrella insurance covers the same situations as liability insurance. The difference is that umbrella policies add extra coverage to what liability insurance already offers.
Umbrella insurance coverage covers any extra costs that liability policies are unable to cover. They protect the liable driver from needing to pay out of pocket for leftover costs. For instance, in some cases legal fees will exceed the coverage of liability insurance.
Umbrella policies are great for protecting you from huge expenses. As an example, crashing into an exotic car would cost you thousands to repair. The expenses could go over your liability limits. Luckily, an umbrella policy would go beyond your limits and cover you.
Cost of Liability Auto Insurance
Everybody pays a different amount for their insurance. Insurers use a variety of factors to help determine your rates. These factors are little details about you that can tell a company if you’re a risk for filing claims. These factors include:
- Past driving record
- Credit rating
- Coverage type
- Marital status
- Type of car that you drive
- Age (under or over the age of 25)
- Where you live
- Annual car mileage
One insurer might charge you less than another. It’s always a good idea to compare auto insurance quotes before you settle on a company. That’s the only way to know you’re getting the best rate.
Frequently Asked Questions
Q: What if I live in a no-fault state?
A: In a no-fault state, the insurance company will pay for the injuries of the other party up to a certain point. You may have to cover the left-over expenses if the costs exceed the insurance limit.
Liability insurance is useful in no-fault states because it will cover the extra expenses without you having to pay out of pocket.
Q: What will happen to my rates after an accident?
A: After any accident that you’re involved in, your insurance rates may increase.
The best way to avoid high insurance rates is to drive as safely as possible and avoid traffic violations.
Q: Is umbrella insurance the same as liability car insurance?
A: Not exactly. Umbrella insurance adds on extra coverage to liability insurance. Excess liability insurance is another name for umbrella insurance. This is because it covers any excess damages that need to be paid.