Car insurance is mandatory in nearly all U.S. states. Although the required coverage types and amounts vary by state, some mandatory coverage types exist almost everywhere, including liability coverage. When you are involved in an at-fault accident, your liability coverage is what helps cover the other party’s injury and vehicle expenses.
What is liability insurance?
Auto liability insurance is a specific type of car insurance coverage that covers injury and damage you cause in a car accident along with the cost to defend or settle lawsuits brought against you because of the accident. Within liability coverage, there are two types of coverage.
- Bodily injury liability 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 coverage covers the cost of damage to other parties’ property when you are at fault in an accident. The most obvious example is vehicle damage, but other types of property include buildings and fences.
What does liability car insurance cover? What does it not cover?
Liability insurance is designed so that if you cause an accident, you can help cover the medical expenses and property damage of the other driver and involved passengers. That is why most states require it. Liability insurance coverage is a way to help prevent the at-fault driver or other affected people from being left with significant out-of-pocket expenses and receive at least some level of compensation for suffering damage or injury in an accident that you cause.
While auto liability insurance covers most costs related to your liability in an accident, a few costs 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 cover?
Although every claim is unique, bodily injury coverage will generally cover the following categories:
- Emergency medical expenses, including an ambulance and hospital care
- Ongoing medical expenses, such as doctor visits and rehabilitation
- Lost wages
- Pain and suffering
- Funeral expenses
- Related legal expenses
Also, remember that it only pays up to your policy’s limits. If the injured party’s medical expenses exceed your policy’s limit of bodily injury liability coverage, you may be responsible for the difference out of pocket.
What does property damage liability insurance cover?
Property damage liability coverage generally pays for:
- Vehicle damage
- Cost for the other party to rent a replacement vehicle while repairs are completed
- 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 people’s property. It does not help with damage to your own vehicle or damage to a vehicle owned by a family member who lives in the same household as you. To help cover repairs for your vehicle, you will need collision coverage.
The above expenses are all covered up to your policy limit. Any costs that exceed your policy limit may become your responsibility, even if you have liability insurance.
How much does liability insurance cost?
The average cost for minimum coverage auto insurance in the United States is $545 per year, while full coverage costs $1,771 per year. Liability coverage makes up a portion of those premiums. However, car insurance costs vary depending on where you live.
In addition to the state you live in, insurance companies use several individual factors to determine your insurance premiums, including:
- Your age (in most states)
- Type of car you drive
- Your driving history
- Your ZIP code (in most states)
- Coverage types and limits you choose to purchase
The cost of car insurance coverage varies depending on these factors, and individual factors such as those mentioned above can influence individual coverage costs. Additionally, you have a range of coverage limits you can choose from. Higher limits will give you more coverage but will generally increase your premiums.
How much liability insurance do I need?
Everyone has different insurance needs, but you can use some general guidelines to help determine how much coverage you may need. Costs that exceed your coverage limits may become your responsibility, and the more assets you own, the more liability insurance you may need. Talking to a licensed insurance professional is always a good way to determine how much coverage is appropriate for your situation.
Understand your state’s insurance laws
The minimum coverage you need depends on the state you reside in and whether it is a no-fault or tort state. In a no-fault state, in addition to liability, property damage, and bodily injury coverage, a driver may also be required to carry personal injury protection, medical payments, and uninsured/underinsured motorist coverage options.
In most states, you will need to purchase at least your state’s minimum required liability limits to legally drive, and these required limits vary by state. You can use our state-specific car insurance guide to see what is required in your state. It is not required that you know your state’s minimum liability limits, however, because insurance companies will not sell lower-than-minimum coverage that’s required in your state.
When viewing required liability coverage types, you will see three numbers separated by a forward slash.
- The first number is the minimum bodily injury liability required per person in thousands
- The second number is the minimum bodily injury liability required per 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.
These are just the minimum required coverage options. Most insurance professionals recommend that you carry higher liability limits if you can afford to do so.
Think about your financial situation
Although generally mandatory, car insurance may seem unnecessary for those on a tight budget. However, paying a few hundred dollars a year for at least the minimum coverage can save you from greater financial strain. For instance, if you crash your car into someone else’s property and are sued for the damages, those expenses can be far steeper than your insurance premium. Not having auto insurance could also open you to state penalties and the risk of license suspension.
Canceling your insurance or a lapse in coverage could also make you a high-risk customer and result in more expensive premiums later on. Therefore, instead of forgoing insurance, looking for an affordable insurer and available discounts may be worthwhile to keep your costs low.
Consider your net worth
How much liability insurance you need can also depend 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 may want to purchase more liability insurance to cover your net worth and prevent assets from being taken in a judgment. You may even consider an umbrella insurance policy to provide extra liability coverage.
Best providers for liability insurance
Because everyone has different insurance needs, the best car insurance company will vary for every driver. The following companies, chosen by market share, have available discounts and third-party rankings worth considering:
|Car insurance company||Average annual premium for minimum coverage|
Each provider listed has various discounts that may help reduce the cost of annual premiums. When shopping for car insurance, one of the best ways to find the right policy for you is to obtain quotes from several providers and compare them. This way, you can see which provider offers the coverage you want at the lowest price.
What is the difference between liability insurance and other types of car insurance coverage?
Liability insurance helps pay for the medical expenses and damages caused to the other driver and passengers. However, it does not pay for damage to your own vehicle. Several coverage types can be purchased when buying an auto insurance policy. Bodily injury and property damage liability coverage options are just two of them. You may also want to consider purchasing:
- Comprehensive coverage: This pays for damages to your own vehicle caused by weather events, fire, theft, vandalism, or striking an animal.
- Collision coverage: This pays for damages to your vehicle caused by crashes and collisions with other vehicles or objects.
- Uninsured/underinsured motorists coverage: This pays for damages to your vehicle or property caused by a motorist with little to no insurance coverage.
- Roadside assistance coverage: This pays for the expenses in instances if your vehicle breaks down, such as if you need a tow.
- Car rental coverage: This covers the expenses for a rental vehicle while your car is in repair after a covered incident.
- Gap insurance: This pays for the outstanding loan amount on a financed vehicle if it is totaled or stolen before the loan has been paid off.
There are numerous car insurance coverage options, and each insurance company offers its own suite of available coverage. Talking to a licensed agent about your policy may be the best way to determine what coverage options you should purchase.