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Car insurance is a financial safety net that helps protect motorists from serious financial losses that can come from owning a car. Liability insurance is a type of auto insurance coverage that pays out to cover property damage or personal injury to others if your negligence causes those losses. Understanding how liability coverage works and how much coverage you need is critical to planning your financial future. This article explains the basics of liability insurance and provides helpful tips for finding the coverage that’s right for you.
What is liability insurance?
Automobile liability insurance is an important component of a car insurance policy and provides third-party coverage to drivers if they are found responsible for a car accident. Third-party coverage refers to insurance claims paid to another person, but does not cover damage to the named insured vehicle or medical expenses of the third party or his or her passengers. This type of insurance is required by nearly every state and Washington, DC, each with their own minimum coverage requirements. The main purpose of liability insurance is to protect drivers from high out-of-pocket costs and potential financial ruin due to accidents they cause.
How liability insurance works
Automobile liability insurance works by covering costs associated with damage or injury to others if you are deemed responsible for a car accident. This includes two main components: personal injury liability and property damage liability.
Personal injury liability covers your medical bills, lost profits, and legal costs if you are sued as a result of an accident.
Property damage liability covers the cost of repairing or replacing someone else’s property, such as a vehicle or fence, that is damaged in an accident. Other people’s personal property in your vehicle may also be covered.
Liability coverage limits are the maximum amount that an insurance company will pay per person or per incident and are determined when you purchase your insurance. If your accident costs exceed this limit, you may be required to pay the additional costs yourself. Factors such as state minimum requirements, coverage availability, and cost can affect insurance limits.
What does auto liability insurance cover?
Automobile liability insurance covers medical expenses and property damage caused by another person in a car accident. Therefore, membership is required in all states except New Hampshire. This helps prevent at-fault drivers and other affected people from incurring large out-of-pocket costs. It can also help non-at-fault drivers receive some compensation for damages and injuries found to have been caused by the accident.
What does personal injury liability cover?
Personal injury liability insurance covers a wide range of medical expenses and other financial burdens for those injured in an accident that is your fault. This includes the following costs:
- Emergency medical care and ambulance
- Hospitalization fee
- Continuing care costs and necessary medical equipment
- lost wages
- pain and suffering
- funeral expenses
- legal costs
What does property liability insurance cover?
Property damage liability insurance covers the cost of repairing or replacing someone else’s property that is damaged in an accident that is your fault. This includes:
- If you cause damage to the other party’s car
- Other drivers’ rental cars
- Personal items in the other person’s car, such as groceries or sporting goods
- Property damage such as buildings, fences, trees, etc.
What are the different situations in which liability insurance coverage applies?
Example 1: Suppose a driver with liability insurance unintentionally causes a collision with another vehicle. In this scenario, driver liability coverage is designed to cover costs associated with damage caused to the other driver’s vehicle. For example, if the cost of repairing the other party’s vehicle is $5,000, liability insurance will typically cover this amount to ensure that the damage to the other party’s vehicle is covered. However, liability insurance does not cover damage to the policyholder’s vehicle due to an accident at fault, so the at-fault driver must pay for repairs to his or her vehicle. Optional collision coverage covers damage to the vehicle of an at-fault driver.
Example 2: In another situation, imagine a driver hits a pedestrian at a crosswalk or a cyclist on the road. In the case of a pedestrian, the at-fault driver’s personal injury coverage may pay for medical expenses and lost wages. For cyclists, personal injury caused by an at-fault driver will pay for medical expenses, and property damage coverage will pay for repairs or replacement of the bike.
What is not covered by liability insurance?
Liability insurance covers most liability-related costs in the event of an accident, but it does not cover first-party losses. First party losses are losses that relate to you and your passengers. For example, liability insurance typically does not cover:
- Intentional damage
- Vehicles included in insurance
- Payment of medical expenses for you or your passenger
To cover the cost of your vehicle and medical expenses for you and your passengers, you must rely on certain types of insurance, such as comprehensive insurance or collision insurance, to cover the cost of repairing your vehicle. Personal injury coverage and medical payments coverage typically step in to cover medical expenses for you and your passengers in the car.
Supplemental Spousal Liability (SSL) is an exception to the rules regarding liability coverage that may apply to passengers in the at-fault driver’s vehicle. New York auto insurance law recently required all insurance companies to include SSL coverage in all private passenger auto insurance policies. SSL can pay for your spouse’s medical bills if they are injured in a car accident in which your spouse was the negligent driver. For example, this coverage can help if your driver hits black ice and your spouse is seriously injured. Once the insurance’s PIP coverage runs out, the spouse can file a claim under the SSL to pay for any excess covered medical expenses. Policyholders may choose to waive coverage in writing.
How much does liability insurance cost?
As of October 2024, the average cost of auto insurance in the United States is $664 per year for minimum coverage, but averages $2,388 per year for full coverage. Automobile liability insurance accounts for a portion of these premiums, but the total cost of auto insurance depends on the liability limits and other coverage types in your policy.
In addition to the state in which you live, insurance companies use several separate factors to determine your premiums, including:
- Your age (most states)
- Type of car driven and annual mileage
- your driving history
- Your zip code (most states)
- Your credit-based insurance score (most states)
- Types and limits of coverage you choose to purchase
Your total auto insurance coverage is a combination of various costs and factors. For example, the factors used to determine premiums can also affect an individual’s cost of coverage.
Additionally, most companies offer different coverage limits and options. A higher limit will give you more coverage in the event of an at-fault accident, but a higher limit will generally result in higher premiums and therefore higher monthly costs.
learn more: Cheap liability car insurance
How to calculate the amount of liability insurance required
Although everyone’s insurance needs are different, there are some general guidelines to help determine the amount of coverage you need.
Understand your state’s insurance laws
The minimum coverage you need to keep your car on the road depends on the state you live in and whether it’s a no-fault or tort state (states where drivers are liable for damage or injury they cause to others). In a no-fault situation, drivers may be required to carry personal injury protection (PIP) insurance in addition to liability, property damage, and personal injury coverage.
Uninsured or underinsured motorist coverage may also be required, and some states require MedPay.
In most states, you must purchase at least the state’s minimum required liability limits to legally drive. These required limits vary by state. Knowing your state’s minimum liability limits can be helpful when considering coverage and insurance. Still, insurance companies cannot offer insurance policies below the legal limit.
When you view the type of liability coverage you need, you’ll see three numbers separated by slashes.
- The first number indicates the minimum personal injury liability required per person in thousands.
- The second number indicates the minimum personal injury liability required per accident in thousands.
- The third number is the required minimum property damage liability in thousands.
So if you see 25/50/25 in Alabama, if you live in Alabama, you have at least $25,000 in personal injury liability per person, $50,000 in personal injury liability per accident, and This means you will be liable for $25,000 in property damage.
Since these are only minimum coverage options, most insurance experts recommend setting higher liability limits if you can afford them to provide greater financial protection. .
Consider your financial situation
Car insurance premiums have risen rapidly over the past few years, making it difficult for many policyholders to keep up with their insurance payments. While dropping your auto insurance may seem like a quick fix for a tight budget, maintaining ongoing coverage can help you avoid a bigger financial burden.
For example, if you crash your car into someone else’s property and are sued for damages, the costs could be much higher than your insurance premiums. If you don’t have auto insurance, you risk being fined by the state and having your driver’s license and vehicle registration suspended.
If you cancel your policy or your coverage lapses, you become a high-risk customer and could end up paying higher premiums down the road. So, instead of dropping your insurance, look for affordable insurance companies and available discounts to keep your costs low.
Consider your net worth
The amount of liability insurance you need also depends on your net worth. If you have significant assets such as a home, car, or large savings account, you may want to purchase more liability insurance to cover your net worth and prevent your assets from being taken away in a judgment. I will. You may also want to consider a comprehensive insurance policy that provides additional liability coverage beyond the typical standard car insurance limits.
Additionally, remember that even if you don’t own a home or have a 401(k) plan now, you might in the future. Understanding your earning potential should also factor into your decision-making.
It is generally believed that you need liability insurance that covers at least your net worth. However, it is always a good idea to consult a qualified insurance professional to determine the amount of coverage you need.
Best Liability Insurance Provider
Because everyone’s insurance needs are different, the best car insurance company will be different for each driver. Selected based on market share, the following companies have discounts and third-party rankings for your consideration.
Drivers looking to save money on their auto insurance may want to check with their agent about discount opportunities and other ways to reduce their premiums. Carriers offer a wide range of discounts, and by getting quotes from multiple carriers, you may find one that offers discounts tailored to your driving profile.
What is the difference between liability insurance and other types of auto insurance coverage?
Liability insurance helps pay for medical bills and damages caused to the other driver, passengers, or property. However, if the driver is at fault, damage to the vehicle or injury will not be covered. To protect yourself financially from a wider range of scenarios, you may also want to consider purchasing the following types of optional insurance:
- Comprehensive coverage: Covers damage to your vehicle caused by weather events, fire, theft, vandalism, or collisions with animals.
- Collision coverage: Covers damage to the vehicle caused by a collision or collision with another vehicle or object, and also applies to accidents caused by negligence.
- Uninsured/Underinsured Driver Coverage: These coverage options cover injuries caused by motorists with little or no insurance and can be helpful in hit-and-run cases. These types of insurance are often required as part of state minimums, but some states may allow you to refuse them in writing. In some states, coverage for property damage caused by uninsured motorists is offered by some insurance companies.
- Road service coverage: Helps pay for expenses when your car breaks down or needs to be towed. It’s also useful if your battery dies and you need to jump, or if you lose your keys.
- Rental car coverage: Covers rental car expenses while your car is being repaired after a covered accident, up to a certain limit (usually up to 30 days).
- gap insurance: The outstanding loan amount for a financed vehicle is paid if the vehicle is totaled or stolen before the loan or lease is paid off.
There are many coverage options for auto insurance, and each insurance company offers its own coverage coverage. To determine what coverage options you should purchase, it may be best to discuss your policy with a licensed insurance agent.
FAQ
methodology
Bankrate uses Quadrant Information Services to analyze rates for October 2024 for every zip code and carrier in all 50 states and Washington, DC. Prices are weighted based on each area’s population density. Prices quoted are based on a 40-year-old single male/female driver with a good driving history, good credit, and full coverage limits listed below.
- Personal injury liability $100,000 per person
- $300,000 personal injury liability per accident
- $50,000 property damage liability per accident
- $100,000 per person for uninsured motorist injuries
- $300,000 per uninsured motorist injury
- $500 collision deductible
- $500 comprehensive deductible
To determine the minimum coverage limit, Bankrate used the minimum coverage amount that meets each state’s requirements. Our basic profile driver owns a 2022 Toyota Camry, commutes 5 days a week, and drives 12,000 miles a year.
These are sample rates and should be used for comparison purposes only.
