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How does auto liability work?

Auto accident involving two cars
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Car insurance companies offer several coverage types. Liability is one of the most important. If you cause an accident, your liability coverage is the portion of your policy that pays for the damages and injuries to the other party. Because car accidents can lead to expensive medical costs and vehicle repair bills (and sometimes even lawsuits), having proper liability coverage is critical to protecting your financial health.

Most states require drivers to carry at least minimum amounts of liability coverage. However, state minimum limits are often relatively low and may not provide enough protection. Although minimum limits could keep your premium down, you could be hit with sizable out-of-pocket expenses if you cause an accident and the damages exceed your insurance limits. Bankrate investigated the average cost of various liability limits to help you decide if the added expense of higher limits is worth the extra coverage.

How much auto liability coverage do you need?

You will have to buy at least your state’s minimum liability limits to drive legally in most states (not including New Hampshire or Virginia), but is that enough? Although lower limits generally mean a lower premium, purchasing state minimum limits can leave you more financially exposed. If you cause an accident, your insurance will only pay up to your policy amounts. Lower limits are exhausted more quickly, potentially leaving you with out-of-pocket costs.

Thankfully, it doesn’t cost much to buy more liability coverage, according to Bankrate’s analysis of different liability limits and their impact on auto premiums. The table below shows the average cost to purchase liability coverage in excess of state minimum amounts. The liability level is presented in three numbers, separated by a slash. These numbers are the amount of coverage for:

bodily injury per person / bodily injury per accident / property damage

You can see the premium difference for buying different levels of liability coverage. Each of the premiums below is for a full coverage policy with $500 in comprehensive and collision deductibles. The liability limits vary from state minimum coverage up to 250/500/100.

Rates include bodily injury liability per person and per accident, and property damage liability, respectively. PIP and uninsured/underinsured motorist coverage are applied for states that require them.

Although higher limits do cost more, you get much more financial protection by reducing your risk of paying out-of-pocket expenses from an at-fault accident. Buying liability coverage is a bit of a balancing act. You need to ensure you stay within your budget so that you don’t stress your monthly finances, but you want to feel comfortable with your coverage level if you cause an accident. If you aren’t sure how much coverage to purchase, you may want to get quotes for a few different levels and discuss your options with a licensed insurance agent.

What damage does auto liability insurance cover?

By nature of accidents, you probably don’t ever intend to cause one. But car accidents happen, and when they do, you probably want to know that your finances are protected. Even minor accidents can lead to hundreds or thousands of dollars in repair bills, and medical expenses can add up even faster. Liability insurance can help protect you from financial devastation by preventing steep out-of-pocket bills.

Liability coverage types

Liability coverage has a few parts. Bodily injury liability pays for the injuries that you cause to the other party and is usually broken into two portions, “per person” and “per accident.” The per person portion pays up to your coverage amount for injuries you cause to each person in an accident, excluding passengers in your vehicle, and the per accident portion sets a cap on the total amount that your insurance will pay for medical expenses. Liability coverage also includes property damage liability, which pays for the damages you cause to the other party’s vehicle, as well as for damage you cause to items like fences, buildings and personal property.

Uninsured and underinsured motorist coverage

Keep in mind that liability coverage only pays for the other party’s damages, not your own. However, the uninsured and underinsured motorist coverage options are structured similarly to liability, but pay for your damages if someone hits you and doesn’t have any insurance or enough insurance to cover your expenses. Essentially, you are purchasing coverage for the drivers who fail to do so. In some states, one or both of these coverage types is required.

How does auto liability work in no-fault states?

Liability insurance is a bit different in no-fault states. 12 states currently have no-fault laws in place:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Utah

Contrary to the name, there is still fault in no-fault states. To understand how and why, we need to talk a bit about how no-fault insurance works.

No-fault states typically require drivers to carry personal injury protection (PIP). PIP primarily covers medical expenses for you and your passengers and pays regardless of fault. It also covers lost wages and the cost of household expenses if you can’t perform them due to an injury sustained in a car accident. PIP does not cover property damage, which is where some confusion happens. Even in no-fault states, at-fault parties are still responsible for the property damage they cause.

Additionally, even though PIP is the first coverage to pay for your injuries, that doesn’t mean that fault won’t be determined. Most no-fault states still require drivers to carry bodily injury liability. Once fault is determined, the at-fault party’s bodily injury liability coverage could begin to pay for your injuries, even though PIP paid first.

Other factors to consider when purchasing auto insurance

Although your liability level makes up a significant portion of your auto insurance premium, it isn’t the only factor to think about. If you choose full coverage, your deductible level will also impact how much you pay for coverage. If you have a loan on your vehicle, you’ll likely be required to carry full coverage. And if you lease your car, you may even have to purchase a certain amount of liability coverage — often 100/300/50 — as part of the lease agreement.

Your coverage levels may also depend on the values of your assets. Generally, the more wealth you have to protect, the more coverage you are likely to need. Even without significant wealth to protect, your liability coverage can help you avoid financial ruin if you cause an accident. Purchasing appropriate coverage limits could help you manage your budget and your overall financial health.

Finally, you may want to change your liability limits when you experience life events, like adding a teenage driver to your policy or buying a home. For example, because teen drivers tend to get into more accidents, having higher liability limits could protect you from out-of-pocket costs if your teen causes a crash. Owning a home means you have more assets to protect. When you experience events that change your life, talking with an insurance agent about potential changes to your policy might be wise.


Bankrate utilizes Quadrant Information Services to analyze 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:

  • $500 collision deductible
  • $500 comprehensive deductible

Bodily injury liability: Rates were calculated by evaluating our base profile with the following limits applied: state minimum, 50/100, 100/300 and 250/300.

Property damage liability: Rates were calculated by evaluating our base profile with the following limits applied: state minimum, $50,000 and $100,000.

Uninsured/underinsured motorist coverage: Rates were calculated by evaluating our base profile with the following coverage amounts applied: state minimum, 50/100, 100/300 and 250/500.

Personal injury protection: Rates were calculated by evaluating our base profile with the state minimums applied.

To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2019 Toyota Camry, commute five days a week and drive 12,000 miles annually.

These are sample rates and should only be used for comparative purposes.

Written by
Cate Deventer
Insurance Writer & Editor
Cate Deventer is a writer, editor and insurance professional with over a decade of experience in the insurance industry as a licensed insurance agent.
Edited by
Insurance Editor