What Is Liability Car Insurance Coverage?

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Liability car insurance coverage is the most common type of mandatory auto insurance in the United States, and around the world. Its purpose is to pay other drivers, passengers and victims for injuries and property damage sustained in accidents where you are found to be at fault.

Thus, it protects you from the potentially ruinous costs arising from an accident; along with the victims who will be fairly compensated.

There are two key things to know about liability auto insurance before continuing. First, you should be aware that it only pays for injury and property damage to others. It will not pay for injuries to you or passengers in your car, nor will it pay for damage sustained to your vehicle.

Second, your insurance company will only payout up-to the limit included in your policy. However, your own personal liability can exceed that in the event of a very serious accident. If the cost of an accident exceeds your liability insurance policy limits, you can be legally held to be responsible for making up the difference. It is for this reason that you are strongly advised to look into high liability insurance limits, and/or an umbrella liability insurance policy.

Minimums/Format

Liability insurance coverage is divided into two different types: bodily injury coverage and property damage coverage. Typically the coverage amount is written out in the following format: 25/50/25 (the numbers changing based on your state’s insurance laws).

The first two numbers refer to the amount of bodily injury coverage offered on the policy, whereas the last number refers to the amount of property damage coverage offered. The numbers refer to the amount of coverage in terms of thousands of dollars of coverage.

Currently, each state in the United States sets its own minimum mandatory liability insurance requirements. Always check with your local auto insurance agent or company before purchasing coverage to find what the minimums are where you live.

What Is Bodily Injury Liability Insurance Coverage (BI)?

Bodily Injury coverage is used to pay for injuries to and death of, other people in an accident, where you are found to be liable or at fault. It does not pay for any of your own injuries or those of the passengers in your car. There are two portions to bodily injury coverage.

In the example above, of 25/50/25 liability coverage, the first 25 refers to the amount of bodily injury coverage you have for one per person in any one accident. In this case $25,000. The 50 refers to the total amount of bodily injury coverage you have per accident (for multiple victims), in this case $50,000. Most drivers should strongly consider buying more than their state’s minimum requirements. 100/300 coverage may be a good place to start, but be sure to ask a local licensed insurance agent if you are in any way unsure.

What Is Property Damage Liability Insurance Coverage (PD)?

The second part of your liability insurance coverage is coverage for property damage. Again, this is used to pay for damage to other people’s property not your own, if you are found to be at fault in an accident. In the example above, the last 25 is the amount of property damage your policy covers, in this case $25,000.

You may also wish to consider getting higher property damage coverage along with higher bodily injury liability insurance limits. For example, if you crash into a BMW 7 series and total it, your property damage liability is going to be a whole lot more than just $25,000. Remember, your insurance policy will only payout to the limits included in it. Any damages above this amount are still your responsibility, and will have to be paid out-of-pocket, rather than from the insurance company.

What Is A Combined Liability Insurance Policy?

Some states do allow you to buy a combined limit liability insurance policy. It pays out up to the policy limit, but is based on the total cost of the accident and not divided between bodily injury and property damage. So if you had a $100,000 combined limit policy, you would be covered by causing up to $100,000 worth of injuries, or $100,000 worth of property damage, or any combination up to $100,000.

What Is Liability Only Car Insurance?

A liability only car insurance policy, is one which provides only liability insurance and no other form of auto insurance protection. It can be either a combined limit policy or a specified limit policy. Only some states allow you to have this type of coverage, and even then it is not usually recommended.

A liability only policy means you will be protected up to your policy limits, if you cause an accident, but you will have no personal protection. Therefore, if you are found at fault in an accident, you can be left to you pay your own car repairs and medical bills out-of-pocket, assuming you don’t have other insurance to cover these costs. This means an accident can be very expensive for you, even if injuries and property damages to the other party are covered.

What Is Umbrella Liability Insurance?

Umbrella liability insurance is a form of excess insurance. It does not replace the liability insurance limits you have on your auto insurance policy, but enhances them. Essentially it provides a little extra protection, if you are found at fault in a very serious accident, whose costs go over your regular auto insurance liability limits.

Although this is not a mandatory type of insurance coverage, it can be a good way of securing a little extra peace of mind. Consider talking to your insurance agent about whether or not adding umbrella liability insurance is right for you, given your current financial situation.

How Does Negligence/Fault Affect Liability Insurance Payouts?

For both types of liability insurance the degree to which it pays out, will be determined but how your state handles liability and negligence laws. Generally speaking state’s fall into one of two different categories, as follows.

Most use some form of comparative negligence, when determining fault in an accident. How much you have to pay/are entitled to after an accident, is based on how at fault you are in an accident. So if you are 30% at fault for an accident, you can only claim back up to 70% of the costs from the other driver. Usually there is some threshold limit (usually 50 or 51%) where you can’t claim any costs back. Thus if you are 70% at fault in an accident, you can’t claim anything from the other driver, but you (or your insurance) would only have to payout up to 70% of the costs to the other driver/victim.

The other system is known as contributory negligence. Under this system you may not be able to collect a liability insurance payout, if you are in any way responsible for the accident. Currently only the following states follow this system: Alabama, Maryland, North Carolina, Virginia and Washington DC. If you live in these states, please talk to a licensed insurance agent who can fully explain how this system affects your legal rights.

Which States Require Liability Car Insurance Coverage?

Liability car insurance is required in all states except Florida and New Hampshire (Financial Responsibility still required in both). However, both South Carolina and Virginia allow some drivers to opt-out of mandatory liability insurance by paying a large annual fee (over $500 per year). Some other states may allow self-insurance and/or cash/bond deposits to meet your liability insurance requirements, without buying insurance. However, always check before driving your vehicle. You should assume you need liability insurance coverage, unless explicitly stated otherwise.

Interesting Facts

Highest required minimum: Alaska and Maine both require 50/100/25 liability insurance coverage.

Lowest required minimum: The California Automobile Assigned Risk Plan only requires 10/20/3 coverage. For all drivers, Ohio has the lowest requirements at 12.5/25/7.5 or a $32,500 combined policy.

More Information

What Are The Different Types of Car Insurance Coverage Available?

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