Liability Car Insurance: Definition, Coverage, Limits, Example

Liability Car Insurance: Definition, Coverage, Limits, Example
Liability Car Insurance: Definition, Coverage, Limits, Example

 Liability car insurance is an essential part of any car insurance policy that provides financial protection to drivers who cause harm to others or their property while operating a vehicle. It is important to note that liability insurance only covers injuries or damages to third parties and their property, not the driver or their property, which may have separate coverage in other parts of the policy.

Key Takeaways:

  • Liability car insurance offers financial protection to drivers in case they cause harm to others or their property while driving.
  • Bodily injury liability covers medical expenses for people injured in the accident.
  • Property damage liability covers the cost of repairing the vehicles of other drivers involved in the accident.

Understanding Car Liability Insurance

Car accidents can result in costly damages and expenses, but liability car insurance can help cover these costs. When a driver is found at fault in an accident, their insurance company will typically pay for the medical and property expenses of the other parties involved in the accident, up to the limits set by the policy.

However, in states with no-fault auto insurance laws, drivers involved in an accident must first file a claim with their own insurance company, regardless of who was at fault. In these states, drivers are typically required to purchase personal injury protection (PIP) coverage to cover their accident-related medical expenses and those of their passengers.

Liability car insurance is made up of two types of coverage: bodily injury liability and property damage liability.

Bodily Injury

This type of coverage protects the at-fault driver from being held accountable for the medical expenses, lost income, or funeral costs of others involved in the accident. In addition, bodily injury liability coverage can help with the policyholder's legal fees if the accident leads to a lawsuit. By having this type of coverage, drivers can rest assured that they have protection in case of a serious accident.

Property Damage

This type of coverage helps to cover the costs of repairing or replacing the vehicles of other drivers involved in the accident. It also protects against the damage done to other forms of property by the policyholder's vehicle, such as fences, mailboxes, or buildings. Having property damage liability coverage can provide drivers with peace of mind, knowing that they are protected from the financial burden of damaging other people's property in an accident.

Liability Car Insurance Coverage Limits

When it comes to liability car insurance, there are set limits for each type of coverage, based on the policy you choose. The three liability coverage limits are:

  • Liability Limit for Property Damage: This coverage limit is the maximum amount that the policy will pay for any property damage caused by the at-fault driver. If the cost of damage exceeds the coverage limit, the at-fault driver will be responsible for paying the difference out of pocket.
  • Liability Limit for Bodily Injury per Person: This limit is the maximum amount that the insurance company will pay for an individual who has been injured in an accident. If more than one person is injured, this coverage limit applies to each person individually.
  • Liability Limit for Bodily Injury per Accident: This limit is the total amount that the policy will pay for all individuals injured in an accident. Once the total payout reaches the coverage limit, the at-fault driver is responsible for paying any additional medical expenses. It's important to note that the coverage limit per accident is lower than the total of per-person limits, which means that the policy may not cover all the medical expenses of each injured individual.

NOTE: In addition to assisting you in upholding your legal commitments to others, bodily injury liability coverage protects your own financial interests. This kind of coverage can offer important protection for your home and other assets in the sad event that you are sued by a driver or passenger after an accident. Bodily injury liability insurance can assist protect your financial security by paying for the costs of legal fees and damages granted.

Requirements for Liability Car Insurance

Liability car insurance is a legal requirement in every state, and each state sets its own minimum coverage limits that drivers must carry. These limits typically include coverage for bodily injury and property damage. For example, in some states, drivers are required to carry a minimum of $25,000 in coverage for injuries to one person, $50,000 for injuries to multiple people, and $10,000 for property damage.

However, it's important to keep in mind that these minimums may not be enough to fully protect you in case of a serious accident. Medical bills and other damages can quickly add up, leaving you responsible for expenses that exceed your coverage limits. For this reason, it's often wise to consider purchasing additional liability coverage above the minimum required by your state.

If you have substantial assets that you wish to protect in case of a lawsuit, you may also want to consider purchasing an umbrella insurance policy. This type of policy can provide additional liability coverage for both your auto and homeowners insurance policies, typically in amounts of $1 million or more. While this additional coverage may come at an additional cost, it can offer valuable protection and peace of mind in the event of an unexpected accident.

TIP: You might also require gap insurance if you drive a pricey car that will likely lose value quite rapidly.

Example of Liability Car Insurance

To illustrate how liability car insurance works, let's consider a hypothetical scenario in a state without no-fault insurance. Suppose a driver has purchased the following liability car coverage from their insurance company:

  • Bodily injury liability limit per person of $60,000
  • Bodily injury limit per accident of $150,000

If the driver gets into an accident where they are found to be at fault, and multiple people are injured, liability car insurance would come into play. For instance:

  • Person A incurs medical costs of $30,000
  • Person B incurs medical costs of $40,000
  • Person C incurs medical costs of $50,000

In this case, the at-fault driver's liability coverage would apply because each individual involved in the accident had medical expenses of less than $60,000. Additionally, the total cost for all parties (excluding the at-fault driver) was $120,000, which is below the per-accident bodily injury limit of $150,000. This example underscores the importance of having adequate liability coverage, as medical bills can add up quickly and exceed minimum state requirements.

It's important to keep in mind that some insurance policies have a per-accident limit, which means that they will not cover any expenses beyond this limit, even if the per-person limits have not been exceeded. For instance, in the previous example, if each person had medical expenses of $55,000, even though those costs fall within the per-person limit of $60,000, the total cost of $165,000 exceeds the per-accident limit of $150,000. As a result, the at-fault driver would be responsible for the additional $15,000.

NOTE: State-mandated minimums for liability coverage on auto insurance exist, but it's frequently a good idea to purchase extra.

Liability vs. Full-Coverage Automobile Insurance

When it comes to automobile insurance, you may have heard of the terms "liability" and "full coverage." Liability coverage is the minimum amount of insurance required by law in most states and typically covers the costs of injuries or property damage you may cause to others in an accident. On the other hand, full-coverage policies include liability coverage as well as collision and comprehensive insurance, which provide protection for your own vehicle.

While liability insurance only covers damages and injuries to other drivers or their property, collision and comprehensive insurance protect your own car. Collision insurance covers damage to your vehicle from a collision, while comprehensive insurance covers damage from non-collision events, such as theft or natural disasters.

While a liability-only policy is typically cheaper, a full-coverage policy will provide greater financial protection in the event of an accident. It's important to understand the different types of coverage and choose the policy that best fits your needs and budget.

  • Collision insurance and comprehensive insurance are two types of automobile insurance coverage that can help protect your vehicle in different situations. Collision insurance covers damages to your vehicle resulting from a collision with another vehicle or objects such as a tree or wall.
  • Comprehensive insurance covers damages to your vehicle that are not a result of a collision, such as theft, fire, vandalism, or natural disasters like hail, floods, and falling objects. It is important to note that while these types of coverage are optional for vehicles that are owned free and clear, they may be required by your lender if your vehicle is financed.

Although collision and comprehensive insurance are optional for vehicles that are owned outright, if your vehicle is financed, your lender may require you to have them. This is because the lender wants to protect the value of the vehicle since it serves as collateral for the loan. Even if you aren't required to have collision or comprehensive insurance, you may want to consider buying them unless you could easily afford a major repair bill out of pocket.

It's important to note that the specific provisions and requirements of car insurance can vary from state to state, so it's worth consulting with a knowledgeable insurance agent or broker who is familiar with your state's rules. It's also a good idea to compare car insurance rates to make sure you're getting the best coverage at the best price.

DISCLAIMER: The information provided in this article is for educational and informational purposes only and should not be taken as professional or legal advice. Auto insurance laws and regulations vary by state and are subject to change. It is important to consult with a licensed insurance agent or attorney for advice on specific coverage needs and requirements in your area. The accuracy and completeness of the information provided in this article is not guaranteed and may be subject to errors or omissions. The author and publisher disclaim any liability for any loss or damage resulting from reliance on the information provided in this article.