What Is Liability Car Insurance? Exploring Its Coverage And Limits

Liability car insurance protects drivers financially when they cause harm to others or their property while driving.

It covers injuries and damages to third parties, not the driver or their property.

There are two parts to liability car insurance: bodily injury liability and property damage liability.

Almost every state, except New Hampshire, mandates some level of liability coverage for drivers.

How does liability car insurance work
Liability car insurance covers damages to others and their property in an accident you cause. It pays for the driver’s car repair costs, minus your deductible, up to your coverage limit. It also handles legal expenses if you’re sued due to the accident, and it’s typically a legal requirement in most states: Photo source (NerdWallet)

Understanding Car Liability Insurance

Liability car insurance functions to offset expenses arising from a car collision. In numerous states, when a driver is deemed responsible for the accident, their insurance provider assumes the financial responsibility for the property and medical costs incurred by other parties involved, adhering to the predefined policy limits.

Contrastingly, within states adopting a no-fault auto insurance system, drivers implicated in an accident must initiate a claim with their own insurance carriers, irrespective of fault attribution. In such jurisdictions, drivers are commonly obligated to obtain personal injury protection (PIP) coverage, encompassing medical expenses related to the accident for both themselves and their passengers.

Liability car insurance consists of two types of coverage:

Bodily Injury

The bodily injury liability portion of an car insurance policy covers an at-fault driver, so they are not liable for others’ emergency and ongoing medical expenses, loss of income, or funeral costs. It also helps cover the policyholder’s legal fees when the accident results in a lawsuit.

Property Damage

Property damage liability helps cover the costs of repairing or replacing the vehicles of other drivers involved in the accident. It also covers the damage done to other forms of property by the policyholder’s vehicle, such as fencing, mailboxes or buildings.

Liability Car Insurance Coverage Limits

Liability car insurance has dollar limits on each of its components, depending on the level of coverage you choose when you buy the policy. Those include:

Liability Limit for Property Damage

This limit is the maximum amount of coverage for damage done to property. Any costs that exceed the limit become the responsibility of the at-fault driver.

Liability Limit for Bodily Injury per Person

The per-person limit is the maximum amount that the insurance company will pay out for each individual who has been injured in an accident.

Liability Limit for Bodily Injury per Accident

The liability limit per accident sets a financial cap on the total amount the insurance company will pay for injuries in an accident.

The at-fault driver is responsible for medical expenses beyond this limit.

Requirements for Liability Car Insurance

Each state sets a minimum liability coverage for drivers. For instance, it might require $25,000 for one person’s injuries, $50,000 for multiple injuries, $50,000 for one person’s death, and $10,000 for property damage. Drivers can get more coverage than the state’s minimum, which is wise due to high medical bills.

If you have valuable assets, consider getting an umbrella insurance policy. It boosts liability coverage on both auto and home insurance to $1 million or more.

Example of Liability Car Insurance

Liability car insurance works like this in states without no-fault insurance. Assume a motorist has this liability coverage:

  • $60,000 bodily injury limit per person
  • $150,000 bodily injury limit per accident

In an accident where the insured is at fault:

  • Person A’s medical costs: $30,000
  • Person B’s medical costs: $40,000
  • Person C’s medical costs: $50,000

The at-fault driver’s liability is covered because each person’s medical expenses are under $60,000. Total costs (excluding the at-fault driver) are $120,000, below the per-accident bodily injury limit.

Note: Some policies won’t cover expenses beyond the per-accident limit, even if per-person limits aren’t exceeded.

For instance, if each person had $55,000 in medical expenses, though within the per-person limit, the total $165,000 exceeds the per-accident limit of $150,000.

The at-fault driver would be liable for the extra $15,000.

Read more: What does Cyber liability insurance cover?

Liability vs. Full-Coverage Automobile Insurance

Insurers offer collision and comprehensive insurance in addition to state-required liability coverage.

A policy with all three types is called “full coverage,” costing more but offering more protection.

Collision insurance pays for car repairs after an accident, including with other vehicles or objects.

Comprehensive insurance covers theft or non-collision damage like fire or vandalism.

These are optional for owned vehicles but might be required if financed.

Lenders want to protect the vehicle’s value, so they may mandate these insurances.

Even if not required, it’s wise to consider them to avoid hefty repair bills.

Insurance provisions can vary by state, so consulting an expert is advisable.

Comparing rates ensures you’re getting the best deal.

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