Liability Car Insurance

You may be wondering if it's necessary to obtain liability coverage if you've recently purchased a new or used vehicle. Most states actually require drivers to purchase a certain amount of special coverage when choosing an auto insurance policy.

The purpose of liability coverage is to protect you when you are at fault for a collision. It covers the medical AND property damage expenses of the other drivers and passengers involved in the accident.

Coverage for Damages

Liability auto insurance can help minimize out-of-pocket expenses involved with paying for another person's property damages. It may cover the cost of:

  • Vehicle repairs.
  • Vehicle replacements.
  • Structural repairs to homes and businesses.

Coverage for Injuries

Most states require drivers to carry injury liability insurance to cover the following costs for ALL people involved in an accident:

  • Emergency responder services at the scene of the accident.
  • Medical treatment.
  • Hospital stays.
  • Rehabilitation services.
  • Compensation for loss of income following injuries.
  • Legal defense fees for drivers listed on your policy.
  • Funeral costs.

A Look at Limits

You will encounter different limits as you review liability coverage policies, and it's important to understand what they represent. Under no circumstances would an insurer's maximum payout exceed the limit that has been established in the policy.

Your policy's:

  • Property damage limit: The maximum amount of money your insurance provider would pay to compensate for damage to another person's property.
  • Bodily injury limit per person injured: The maximum amount of money your insurance provider would pay to each person who is injured during an accident that you caused.
  • Bodily injury limit per accident: Sets a combined cap on the full amount that your insurer would pay for all the injuries associated with one accident.
    • When determining this amount, keep in mind you'll need a cash value high enough to hypothetically cover the medical expenses accumulated by several people simultaneously.

Shopping for Coverage

The first step when shopping for coverage is to learn about your state's specific requirements. It's then up to you to decide whether you want to simply meet the minimum requirements OR purchase a higher tier of coverage.

It can be risky to only purchase your state's minimum required amount of liability car insurance.

When choosing your maximum coverage amount, remember that signing up for double the amount of coverage won't necessarily cost you twice as much money. Paying just a few extra dollars per month could increase your payout maximum by thousands of dollars. Keep in mind, there are maximum liability coverage amounts that insurers will not exceed.

Finding the amount of coverage that works for you will ultimately depend on a mix of state requirements, car insurance providers' policies, AND personal circumstances.

Breaking Down Coverage Amounts

There is a very specific three-tier format for how to break down liability coverage amounts.

FOR EXAMPLE: An auto insurance company might give you a coverage formula of 50/100/50.

Here's what you need to know about this formula:

  • First tier: $50,000 per-person coverage limit for bodily injury.
  • Second tier: $100,000 per-accident coverage limit for bodily injury.
  • Third tier: $50,000 coverage limit for vehicle or property damage.

Choosing a coverage formula that looks like 50/100/50 means that your insurer will only cover up to the costs listed.

In this example, you'd be responsible for covering $5,000 out-of-pocket if the cost of another person's bodily injuries totals $55,000 (since $50,000 is the maximum amount of financial responsibility your insurer agreed to cover). The same is true for the other two values in the formula.

Choosing the Correct Coverage Amount

Liability coverage is different than other types of automobile insurance because the amount you choose has nothing to do with the current value of your own vehicle. You can legally get by with choosing the minimum amount required by your state. However, this decision can have negative personal and financial repercussions if you are involved in an accident that causes serious damage.

What's more, it becomes increasingly important to have a higher level of coverage if you own valuable property and assets. If you're taken to court over the costs other parties have incurred due to an accident you caused, your personal possessions may be used as compensation.

Choosing the right level and type of auto insurance for your situation requires you to carefully consider both legal mandates and your personal circumstances. It's important to research what you'll pay when signing up for minimum coverage versus how much a slightly higher tier of car insurance would cost.