Learn About Car Insurance Liability Coverage

Beware the car insurance myths that (1) you only need minimum coverage, (2) liability-only covers damage to your vehicle, and (3) liability coverage has a deductible.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you should know...

  • Liability coverage is required for nearly every driver in the United States
  • There are two types of liability insurance: bodily injury and personal damage
  • Liability coverage does not cover damages to your vehicle in the event of an accident

Insurance policies  can be confusing and liability auto insurance coverage is one type that not everyone understands. Learning the facts and myths about it is important for you to make sure you are covered enough to protect your finances and assets.

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Liability insurance is coverage that is necessary for most drivers but this doesn’t mean that it is the only coverage you should carry. You should choose additional types of insurance coverage in many instances. Speak with an agent or do your own research to ensure that you are properly covered for most circumstances.

There are Two Types of Liability Insurance: Fact

In regards to liability insurance, there are two types: bodily injury and property damage. Most drivers carry both types of coverage. Liability coverage is important because it protects you when you are the cause of an accident.

If there is damage to the other driver’s car your property damage liability will help pay for the damages. If the driver or passengers in the other car are injured in any way, your bodily injury liability will contribute towards their doctor bills.

Without this type of coverage, you would have to pay for all damages yourself.

If you didn’t have enough money to cover everything the other party could sue you and go after your assets such as your house, jewelry, vehicles, or other valuables.

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There are Different Limits for Liability Coverage: Fact

When you add liability coverage to your policy, you will be given the opportunity to choose the limit amounts for both bodily injury and property damage. Each state sets the minimum amount that you need to carry but you can always change it to higher limits if you so choose.

When you look at your policy, you will see the limits in three different amounts. One is for bodily injury for one person, one is for bodily injury for the entire party, and the last one is for the property damage. The numbers are separated by a backslash. It will look something like 15/30/10.

In this instance, it means that you have a $15,000 limit for one person’s injuries and $30,000 for the whole party, even if it means there were four people injured in the other vehicle. The last figure means that you have a limit of $10,000 for any damage done to the other vehicle.

You Only Need to Carry the Bare Minimum Coverage: Myth

Although states set the requirements that you have to carry on your auto policy, oftentimes the limit amounts that are required are very low. Limits refer to the maximum amount that your insurance company is responsible for. Once that limit has been reached, you will be responsible for covering the difference.

In the prior example, limits of 15/30/10 are quite low, and they really aren’t enough for a serious accident. Let’s say you caused an accident that was a bit more major.

The medical costs from the accident are very high, with initial emergency visits costing thousands of dollars. If care that is more extensive is needed, which is often the case in car accidents; your measly $15,000 and $30,000 limits would run out very quickly. You would be responsible for any amounts over your insurance coverage liability limits.

Unless the car you hit was worth less than $10,000, there is a very good chance that your property damage limit would run out quickly as well. Once the insurance company has fulfilled its financial responsibility, it washes its hands of it and passes the torch to you. Most people do not have the amount of funds that are necessary to cover the rest of the damages.

To help protect your money and assets, it is highly recommended that you purchase higher limits for your liability coverage.

In fact, the Insurance Information Institute suggests that you carry higher limits such as $100,000 for bodily injury for one person and $300,000 for bodily injury for the whole accident.

It may seem like these limits are very high, but remember how fast medical costs can go up. Having these higher limits will almost ensure that you are covered for any accident.

Liability Insurance Covers Damage to Your Vehicle: Myth

You may think that since you have liability property damage and liability bodily injury coverage that you are covered for damages done to your own car and the passengers in it. This is completely untrue. Liability coverage only covers the other party. If you don’t have additional coverage on your policy then you will be fully responsible for your own expenses.

If your car is not a clunker, it would be advisable to purchase supplementary coverage. Collision coverage would help pay for damage to your car from smashing into another car or even a building or other object. For other damage done to your car from things such as fire, vandalism, hail, hitting an animal, a fallen tree, or theft, comprehensive coverage would help cover damage expenses.

With both of these types of coverage, you will decide upon a deductible. This is the dollar amount that you have to pay for before your insurance provider will start to pay anything. Although it may be tempting to choose a lower deductible so that you don’t have to pay as much, a lower one will increase your policy premium.

To help pay for injuries that you or your passengers incur, there is medical coverage available to add to your policy. In some states, it is referred to as PIP, or personal injury protection, and in others, it is called medical payments. Either one will pay for medical costs and associated expenses up to a certain amount.

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Most States Require Liability Auto Insurance: Fact

States consider liability so important that most of them have mandated that all drivers carry it. Each state sets its own limit amounts as to how much you have to have. Check with your state department of insurance to make sure that you are carrying the appropriate amounts.

A startling 13.8 percent of motorists are currently driving without any insurance at all, says the latest data from the Insurance Research Council.

Not only is this dangerous for drivers on the road, but the consequences, if caught, are not good.

If you are pulled over and are unable to prove that you are carrying the appropriate amount of insurance, you can have your license suspended and be required to pay a large fine. You will get your license back only once you have paid the appropriate fees and can prove you have purchased the required insurance coverage. It also will usually cause your car insurance rates to increase now and in the future.

There is a Deductible with Liability Insurance: Myth

Although deductibles are linked to certain types of car insurance, such as comprehensive and collision, there is no deductible required for liability coverage. This means that your insurance company will start paying for damages right away.

A Liability Only Policy is the Cheapest Policy Available: Fact

For drivers on a budget, purchasing a policy that only contains liability coverage is the best way to go. For the least expensive policy, choose only the limits that are mandated by the state rather than increasing them.

Keep in mind that although these types of policies will be the cheapest when it comes to paying your policy premium, it means a much higher price tag if you happen to get into an accident. Any damage that occurs to your vehicle will have to be paid solely by you if you don’t want to drive around in a beat-up car. In addition, if you are in an accident that completely totals your car you will be responsible for buying a new one with no help from your insurance company.

Also, just because a liability-only policy is the cheapest one relative to adding other coverage, it still may be a more expensive policy depending on your car and how good of a driver you are. The types of coverage you choose are one factor in deciding how much your insurance policy is going to be, but there are other factors that have more weight.

Young drivers sometimes choose policies that only carry liability coverage because they are just starting out.

Because drivers from the age of 15 to 20 are the highest risk drivers, states the National Highway Traffic Safety Administration, the premium for their policy will still be quite high.

In addition, because they have a much higher risk of accidents, it would be a good idea to pay even more and get fuller coverage.

Purchasing a policy that only has liability coverage is a good idea in some instances. If you are driving a car that is fully paid off and is an older car it may be a smart idea to take off comprehensive and collision coverage, at least. Weigh the benefits and negatives of keeping uninsured motorist coverage and medical coverage to decide the best route for you to take.

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