What You Need to Know About Auto Insurance Liability Coverage

What is liability coverage?

Liability coverage is an important part of any auto insurance policy. It provides financial protection if you are found legally responsible for bodily injury or property damage to another person resulting from an auto accident.

There are two main types of liability coverage:

• Bodily injury liability covers medical expenses, lost wages, pain and suffering, and other losses if you injure someone in an accident. This coverage pays for injuries to people inside or outside your vehicle.
• Property damage liability covers the cost of repairing or replacing another person’s property that you damage in an accident. This includes damage to other vehicles, buildings, fences, utility poles, and more.

The purpose of liability coverage is to protect your assets and future earnings. Without it, you could be sued and held personally responsible for accident-related expenses and damages awarded in a lawsuit. Liability insurance covers these costs so you don’t have to pay out of pocket. This provides important financial protection and peace of mind.

Most states require drivers to carry minimum liability limits, but it’s recommended to purchase higher limits to better protect your assets. Liability coverage applies to at-fault accidents and kick in after any applicable deductibles have been met. This coverage is a critical component of any auto policy.

Bodily injury liability

Bodily injury liability coverage is a key component of any auto insurance policy. This type of coverage pays for injuries that the policyholder causes to someone else in an at-fault accident.

Bodily injury liability insurance helps protect drivers from serious financial consequences if they are found legally responsible for injuring or killing someone in a crash. Without this coverage, the policyholder would have to pay these costs out-of-pocket, which could easily total tens or hundreds of thousands of dollars.

Bodily injury liability coverage is often structured with split limits, such as 100/300. The first number is the maximum amount an insurer will pay per person injured in an accident. So in this example, up to $100,000 would be paid per individual injured by the policyholder.

The second number, $300,000 in this case, is the maximum amount that would be paid out per accident, no matter how many people were injured. So if three people were injured, the policy would cover up to $100,000 each for the first two people. If the third person’s injuries exceeded the remaining $100,000 limit, the policyholder would be responsible for the excess amount.

Split liability limits allow insurers to cap exposure per accident while still providing substantial protection for policyholders. Higher liability limits mean greater protection but also higher premiums. Most states have minimum bodily injury liability requirements, but experts recommend carrying more than the minimum to better shield assets.

Property Damage Liability

Property damage liability coverage is the portion of an auto insurance policy that covers damage to someone else’s property resulting from an accident caused by the policyholder.

This portion of liability coverage applies when the policyholder is determined to be at-fault in an auto accident that damages another person’s vehicle, building, fence, or other property. Unlike bodily injury liability which covers medical expenses and other damages to an injured party, property damage liability strictly covers the cost of repairing or replacing someone else’s damaged property.

Property damage liability coverage often has a single limit, meaning the insurer will pay up to that amount per accident regardless of the number of other vehicles or properties damaged. For example, if you have a $50,000 property damage liability limit and get into an accident where you damage four other cars, the total payout would be capped at $50,000 divided amongst the property owners. The insurer would assess the damage and distribute payments accordingly up to the $50,000 limit.

It’s important to have adequate property damage liability coverage in case of a major accident. Most states require minimum limits ranging from $10,000 to $25,000, but experts recommend carrying $100,000 or more if possible. Having insufficient coverage means you could be personally responsible for thousands in repairs if you cause extensive property damage. Review your policy limits and consider increasing them if needed to properly protect your assets.

Also, Read : Differences Between Comprehensive and Collision Coverage

Determining Appropriate Liability Limits

When choosing liability limits, it’s important to consider your personal financial situation and potential risks. The more assets you have to protect, the higher your liability limits should be. Here are some key factors to think about:

• State minimum requirements – Most states require drivers to carry a minimum amount of liability coverage, usually expressed as 25/50/25. This breaks down to $25,000 bodily injury liability per person, $50,000 bodily injury liability per accident, and $25,000 property damage liability. While minimum limits provide basic protection, they may not be enough to cover major accidents.
• Personal assets – Your assets play a big role in choosing proper liability limits. If you have significant assets like a house, retirement savings, investment accounts, rental properties, etc., you’ll want higher liability limits to protect those assets in case you are sued. Umbrella insurance can provide additional liability coverage beyond auto policy limits.
• Future earning potential – If you have a high-paying job or profession, you could be a target for lawsuits seeking damages that exceed lower policy limits. Higher liability limits ensure your future wages and livelihood are protected.
• Driving record – Drivers with accidents, violations, DUIs or other issues on their record present higher risk. They may need to carry 100/300/100 or even 300/500/100 in liability limits.
• Vehicle use – Frequent business use, ridesharing services, and high annual mileage increase your chance of an at-fault accident, warranting higher liability limits.

Talk to an independent insurance agent to determine what liability limits make sense for your specific situation and risk factors. Don’t just carry the minimum required – make sure you have adequate protection.

Adding an Umbrella Policy

Many drivers purchase an umbrella insurance policy for extra liability protection beyond their auto insurance policy limits. An umbrella policy provides additional coverage that kicks in when the limits of your underlying auto or home insurance policies are reached.

For example, if you have 100/300/100 liability limits on your auto policy, meaning $100,000 per person for bodily injury, $300,000 per accident, and $100,000 for property damage, an umbrella policy would provide additional coverage above those amounts if an accident claim exceeds your policy limits.

Umbrella policies also provide liability coverage for other risks besides auto, like your home or rental property. So if you are sued for an incident at your home that is not covered sufficiently by your homeowners or renters insurance, the umbrella policy could step in to cover damages above your base policy limits.

The advantage of umbrella coverage is the extra protection it provides for peace of mind, in case you are involved in a major liability lawsuit that exceeds your ordinary policy limits. Adding an umbrella policy for $1 million to $5 million in additional coverage is relatively affordable compared to increasing the limits on auto and home policies by the same amounts.

Umbrella policies start at around $150 to $300 per year for $1 million in additional coverage. Factors like your assets, insurance claims history, and liability risks affect the cost. But umbrella coverage generally offers substantial extra protection for a reasonable price. For drivers and homeowners concerned about liability exposures beyond their base policy limits, an umbrella policy can provide worthwhile extra coverage and risk management.

Factors affecting liability costs

Your driving record, where you live, and personal demographics can all impact how much you pay for liability coverage.

Driving record

Your driving history plays a major role in determining your auto insurance rates. Getting tickets, at-fault accidents, DUIs, or other violations will raise your liability premiums significantly. Insurance companies view these incidents as evidence you are more likely to file a claim. Multiple incidents will compound the rate increase.

Even a single ticket or accident can increase your costs by 20-30% or more. Higher risk drivers with multiple incidents may pay 2-3 times more than drivers with clean records. The impact declines over time if you maintain a clean record.

Location

Where you live and park your vehicle affects premiums. Urban areas with more accidents, traffic, vandalism and theft have higher liability rates. Rural and suburban areas generally have lower costs. Covering a car parked overnight in a high crime city zip code costs more than a low risk suburban location.

Insurance is regulated at the state level, so liability rates vary across different states. States like Michigan and Louisiana have rates double compared to states like Maine and Wisconsin. You’ll pay more for the same coverage in high cost states.

Demographics

Factors like your age, gender, marital status, and credit rating may influence rates. Married drivers over 30 tend to have fewer claims than single younger drivers. Men generally pay more than women overall. Premiums are highest for drivers under 25, then start to decrease at age 25 and decline until about age 65. After age 65, rates start to increase again.

Reducing Liability Costs

There are several ways drivers can reduce their liability costs:

Install safety features. Adding features like airbags, antilock brakes, automatic crash notification systems, backup cameras, blind spot detection, and lane departure warnings can help prevent accidents and reduce injuries. This lowers the risk of claims, which may qualify you for lower premiums.

Drive a low-risk vehicle. The make and model of your car affects premiums. Larger vehicles like SUVs and trucks often have higher liability premiums because they can cause more damage in an accident. Opting for a smaller, lower-risk vehicle can reduce your rates.

Take a defensive driving course. Completing a defensive driving course shows insurers you’re committed to safe driving. It can make you eligible for a discount of 5% to 15% on liability and other coverages. Refresher courses may also help maintain your discount.

Maintain a good driving record. Drivers with speeding tickets, at-fault accidents, and other infractions pay more for liability coverage. Obeying traffic laws and driving carefully keeps your record clean, reducing your risk profile.

Ask about discounts. Insurers offer discounts for safety features, low mileage, good students, completing insurance company driving programs, insuring multiple vehicles/policies with them, and more. Checking if you qualify can potentially lower liability premiums.

Raise your deductible. Opting for a higher deductible decreases premiums but increases out-of-pocket costs if an accident occurs. This is an option if you want to save on premiums and can afford higher deductibles.

Compare quotes regularly. Rates can vary widely among insurers. Comparing quotes every 6-12 months from different providers ensures you don’t overpay for liability or other coverages.

Liability Coverage Exclusions

Most auto insurance policies contain some exclusions where the liability coverage will not apply. It is important to understand these exclusions when selecting a policy.

Two common liability coverage exclusions are:

Intentional Acts

Liability coverage typically excludes damage or injury that results from an intentional or criminal act by the insured driver. For example, if the policyholder purposely causes an accident, the insurer may deny the liability claim. Intentionally causing harm or damage is not considered an accident that would be covered.

Business/Commercial Use

Personal auto policies often exclude vehicles used for business purposes or commercial activities. This includes rideshare driving for companies like Uber or Lyft. The policy may deny a claim if the vehicle was being used for commercial purposes at the time of the accident. Those needing liability coverage for business use will need a commercial auto policy.

Knowing these and other common liability exclusions can prevent an unwanted surprise if you need to file a claim. Discuss any questions with your insurance agent or company when purchasing a policy.

Shopping for the Best Liability Rates

One of the best ways to get a good price on liability coverage is to shop around and compare quotes from multiple insurers. Here are some tips:

• Get quotes from at least 3-5 different insurance companies. Rates can vary widely, so it pays to shop around. You can get quotes online, over the phone, or by working with an independent insurance agent.
• Ask about bundling discounts. Many insurers offer discounts if you purchase multiple policies from them, such as auto and homeowners or renters insurance. Bundling can save you 10-15% or more.
• See if any group affiliations qualify you for discounts. Alumni associations, employer groups, and other organizations may have negotiated discounted rates with certain carriers.
• Consider raising your deductible. Opting for a higher deductible on the comprehensive and collision portions of your policy can substantially reduce premiums. Just make sure you have savings to cover the deductible if needed.

Also, Read : The Ultimate Guide to Choosing the Right Auto Insurance Coverage

• Maintain a good driving record. Drivers with speeding tickets, accidents, or DUIs on their record pay more for liability coverage. Keeping your record clean saves you money over time.
• Ask about all available discounts. There are various common discounts like good driver, safe vehicle, anti-theft devices, paying in full, paperless billing, affinity memberships, defensive driving courses, and more. Inquire to see what you may qualify for.
• Compare similar coverage levels. Make sure you are comparing apples to apples when looking at quotes. The cheapest option may also have less coverage. Know what you are getting.
• Work with an independent agent. Independent agents have access to quotes from many companies and can help you find the best rate. Local agents also provide personalized service if you ever need to file a claim.

Taking the time upfront to shop around and find the best deal on liability coverage can lead to significant long-term savings every year you keep the policy. Comparing options and discounts ensures you don’t overpay.

Frequently asked questions

Liability insurance can be confusing. Here are answers to some of the most common questions about liability coverage:

What does liability insurance cover?

Liability insurance covers claims if you are found legally responsible for bodily injury or property damage. For example, if you cause a car accident that injures another driver, your liability coverage would pay for their medical bills and lost wages up to the limits of your policy.

How much liability insurance should I have?

Experts recommend having at least $100,000 per person and $300,000 per accident in bodily injury coverage. For property damage, $100,000 is considered the minimum. However, you may want higher limits if you have significant assets. An umbrella policy can provide additional liability protection.

Can I save money on liability insurance?

Yes, there are several ways to potentially lower your liability premiums. Maintaining a good driving record, choosing a higher deductible, bundling policies with one company, and asking for discounts can help reduce costs. Comparing quotes from multiple insurers is the best way to find the lowest liability rates.

What doesn’t liability insurance cover?

Liability coverage does not pay for your own medical treatment or damage to your own vehicle or property. It only covers bodily injury and property damage for which you are legally responsible to others. Collision and comprehensive coverage pay for damage to your own car.

Can someone sue me even if I have insurance?

Yes, anyone can file a lawsuit against you alleging damages, even if you have insurance. The liability coverage will pay for legal defense costs and covered awards up to your policy limits. However, you may be responsible for any excess awards beyond your policy limits if a court rules against you.