Liability car insurance explained

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If you’re at fault in a car accident, the other parties involved can file a lawsuit against you to recover the costs associated with their injuries and damage to their property. Without liability insurance, you would be on the hook for paying this amount out of pocket.

With liability coverage in place, your policy pays toward costs if you’re found at-fault in an accident. This coverage pays for medical costs if someone not in your vehicle gets hurt in an accident you cause, as well as damage you cause to property, whether that’s another person’s car or a lamppost.

Almost all states require liability insurance. Don’t get behind the wheel without this coverage in place.

Keep reading to understand how auto liability insurance works and whether your financial assets will be protected in an accident.

What is liability insurance?

Auto liability insurance is a specific type of car insurance that covers injury or damage that you cause in a car accident. There are two types of liability insurance.

Bodily injury liability insurance covers the cost of other parties’ injuries that you cause when you are at fault in an accident. This can include emergency care, continued medical costs and even lost wages.

Property damage liability insurance covers the cost of damage to other parties’ property when you are at fault in an accident. The most obvious example is damage to vehicles, but other types of property including buildings and fences are also covered.

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What does liability car insurance cover? What does it not cover?

Liability insurance is designed to make sure that if you cause an accident, you don’t leave others with bills for medical expenses or property damage. That’s why most states require it. This insurance coverage is a way to prevent the at-fault driver or other affected people from being left with significant out-of-pocket expenses.

While auto liability insurance covers most of the costs related to your liability in an accident, there are a few different costs that are not covered. For example, liability insurance will not cover damage caused by intentional acts. Other costs are specific to the type of insurance.

What does bodily injury liability insurance cover?

  • Emergency medical expenses, including an ambulance and hospital care
  • Ongoing medical expenses, such as doctor’s visits and rehabilitation
  • Lost wages
  • Pain and suffering
  • Funeral expenses
  • Related legal expenses

Your bodily injury liability insurance can also help with legal expenses if the person you hurt takes you to court over the accident.

Remember, your bodily injury coverage extends to other parties, not you or any of your passengers. Also, keep in mind that it only pays up to your policy’s limits. So if you use all of your bodily injury liability toward someone’s medical expenses and it doesn’t cover all their medical bills, you could be responsible for covering any remaining amount.

What does property damage liability insurance cover?

  • Vehicle damage
  • Damage to buildings, homes or businesses
  • Damage to fences, mailboxes and other structures
  • Lost business revenue
  • Related legal expenses

Your property damage liability coverage pays for damage caused by you to other peoples’ property. It doesn’t help with damage to your own car. For that, you’ll need collision coverage.

The above expenses are all covered up to your policy limit. Any costs that exceed your policy limit may become your personal responsibility, even if you have liability insurance.

How much does liability insurance cost?

In 2017, the most recent year for which the Insurance Information Institute (III) has released data, the average cost of liability insurance in the United States is around $611 per year. But this is just a nationwide average; the cost of liability insurance is vastly different from state to state. On the low end, North Dakota’s average auto liability insurance only costs $303. Meanwhile, a typical liability insurance policy in Florida will set you back $964 annually.

Many factors go into determining the cost of your auto liability insurance. Your driving record will have the biggest effect. If you’ve been at-fault in an accident in the past few years, you can expect to pay more than someone with a clean driving record.

Your liability car insurance rate also depends on where you live. This includes not only your state of residence, but whether you live in an urban or rural ZIP code. City dwellers are more likely to get in an accident, for example, and will typically get a higher insurance quote.

Finally, the type of car you drive and how much you use it will play a role. Your insurance underwriter may take factors like the type of vehicle you drive and the distance of your daily commute into consideration.

How much liability insurance do I need?

The minimum liability limits required by law vary by state. You can use our state-specific car insurance guide to see what’s required in your state. You’ll see three numbers separated by a forward slash. Here’s a quick breakdown:

  • The first number is the minimum bodily injury liability required per person in thousands
  • The second number is the minimum bodily injury liability required for all people in the accident in thousands
  • The third number is the minimum property damage liability required in thousands

So when you see 25/50/25 for Alabama, that means if you live in Alabama, you must carry at least $25,000 of bodily injury liability per person, $50,000 of bodily injury liability per accident and $25,000 of property damage liability.

However, just because you meet the minimum liability limits in your state doesn’t mean you have sufficient liability coverage. The average auto liability claim is under $20,000 of combined bodily injury and property damage, but in rare cases, some of the most serious accidents can incur costs in the hundreds of thousands or even millions of dollars. If a judge awards an amount above the limit of your liability insurance, you’ll be responsible for covering the difference. This means that your personal assets could be on the line and you might even face bankruptcy.

How much liability insurance you need depends on your net worth. If you have a lot of assets – such as a house, car or sizable bank account – and not much debt, you’ll need to purchase more liability insurance to cover your net worth and prevent assets from being taken in a judgment. On the other hand, if the total value of your assets is low and/or you have a considerable amount of debt, you may be fine with cheap liability car insurance coverage that carries a lower limit.

Liability insurance is covered by default in nearly all auto insurance policies. This is because auto liability insurance is required in nearly every state, with the exception of Florida, which requires only property damage but not bodily injury liability insurance, and New Hampshire, which requires neither.

As a result, if you live in a state that requires both bodily injury and property damage liability insurance, your auto insurance company will be required to include both types of liability in your policy. Since the minimum limits required by law vary by state, it’s best to talk to your insurance company to see how much coverage you need to get.

Best providers for liability insurance

As with any insurance policy, you’ll want to shop around and get several auto liability insurance quotes before settling on a policy. If getting cheap liability car insurance coverage is most important to you, go for the policy that provides the coverage you need at the lowest price. You can also look at other insurance rating factors like claims experience and policy offerings.

The top five car insurance writers in the United States by volume are:

What is the difference between liability insurance and other types of car insurance coverage?

Liability insurance is different from other types of car insurance coverage in that it covers your liability, or fault, in an accident as it relates to other parties’ bodily injury or property damage. Collision insurance will cover damage to your own vehicle in an accident; comprehensive insurance can extend protection for your vehicle to damage caused by weather, vandalism or animals. You can also purchase uninsured/underinsured motorist insurance in case you are in an accident where the other driver’s insurance policy is not sufficient to cover your own bodily injury or property damage.

Frequently asked questions

What is the right liability car insurance coverage for me?

Many factors will go into determining the right liability insurance policy for you. Your state limit minimums, personal net worth and driving history are just a few components to think about. Talk to your financial advisor and insurance company about what type of coverage will be sufficient.

Does liability insurance cover my car if someone hits me?

Liability insurance does not cover your car if another driver causes an accident. In this case, you’d need to rely on the other driver’s liability insurance to recover damages. You can also purchase uninsured/underinsured motorist insurance in case you are hit by a driver who does not have sufficient liability insurance.

What happens if someone hits my car and I only have liability insurance?

If someone else is at fault in an accident, you’ll be covered under the other driver’s liability insurance policy. However, if the other driver’s liability limit is not sufficient to cover your costs, your liability insurance policy will not cover anything. You may have to pursue the other driver in court to get a judgment against their personal assets. Alternatively, you can carry uninsured/underinsured motorist coverage to step in when the other driver doesn’t have enough or any liability coverage.

Will my personal assets still be at risk if I have liability insurance?

If you cause an accident in which the other parties’ costs exceed your liability insurance limit, your personal assets can still be at risk. Make sure to purchase a policy with a limit that covers your total net worth. If you’re really concerned, you can buy umbrella insurance to get more liability protection.

What happens if I cause an accident and the other driver makes a liability insurance claim?

If you are found to be at-fault in an accident and your insurance company has to pay for the other driver’s damage, you can expect your insurance premiums to go up in most cases. To keep premiums low, make sure to obey traffic laws and avoid driving behaviors that can cause accidents. Some insurance providers also offer safe driving programs that monitor your behavior on the road and provide discounts for good habits.