Liability insurance: why do you need it?

There are three tiers of liability insurance coverage, each allocated to cover different damages.

Many people are afraid to travel by air or even by boat because let’s face it, the turbulence can be scary, as can the big waves that move big boats around like toys. While these modes of transport are scary, do you know which is statistically one of the most dangerous? A 2019 study showed that each year more than 6 million passenger car crashes occur in the United States, of which more than 4 million result in some form of personal injury. This is why the government has made it compulsory to take out civil liability insurance.

What is liability insurance and why is it so necessary that almost every US state has made it illegal to drive a car without this insurance coverage? We will review everything you need to know about this insurance coverage. But before we get into the details, let’s understand the need for car insurance.

Why do you need car insurance?

More than 6 million passenger car accidents each year show how common car accidents are in the country. Accidents are not just an isolated event. What follows after that is perhaps the task of repairs, touch-ups and also medical care. All of these things cost, and they are very expensive. The average ER visit for a car accident is $3,300. The average cost of hospitalization after a car accident is $57,000.

These amounts are outrageous and you don’t want to find yourself in a situation where you have to pay a fortune for medical treatment right after being the victim of a traumatic accident. Not to mention that you have just had your car totaled. That’s why auto insurance exists.

Car insurance comes in different types, each covering different types of damage. Car insurance complicates the aftermath of an accident where the victim does not have to find themselves in a financial crisis to cover their medical care and vehicle repairs.

What is liability insurance?

Third Party Liability Insurance, also known as Third Party Liability Insurance, is the mandatory auto insurance policy that covers the cost of repair and medical treatment of other people/vehicles/property that your vehicle may damage in an accident. Yes, you cannot claim it because this insurance is not for you.

Let’s say you hit another car at fifty miles an hour and almost sent the other car to kingdom come. After everything’s been sorted out and it was just a mistake on your part, the victim of that accident sees the car repair bill (or what’s left of it) and the thousands of dollars in bills of medical care. Who will pay for this?

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Legally, you should be the one paying for it, but what if you don’t have the money? This is why it is mandatory to have liability insurance which has an insured sum of money to be used to cover the repairs and medical expenses of the accident victim.

Parts of liability insurance

There are three tiers of liability insurance coverage, each allocated to cover different damages. Liability insurance coverage is represented by three numbers, something like this; 25/50/20. Each number here represents thousands of dollars. Here’s what that means.

The first part represents the amount insured to cover the medical care and hospitalization costs of a person involved in the accident. Your insurance company would pay a total of $25,000 (as in the example) to cover medical expenses. Nothing more would come out of your pocket.

The second part is also for bodily injury coverage, but it is the maximum amount paid for all individual persons present in the car accident per accident. This means that if in an accident there are two people involved, then the insurance company will pay a maximum of $50,000 (in this example) to cover the medical expenses of everyone involved in the accident. If the cost exceeds the cover, the policyholder will have to pay the remaining amount.

The final part is the amount insured to cover damage to the vehicle or any property in the accident. In the event of an accident, your insurance company would pay $25,000 to cover vehicle repairs or property damage. Any extra will come out of your pocket.

Minimum coverage limit

Each state in the United States that has mandated liability insurance has also set a minimum coverage limit. This means that everyone must carry liability insurance with the mandatory minimum coverage limit. While the most common minimum coverage limit is 25/50/25, in some states this amount can get very high.

Here are the minimum coverage limits for some US states. This is not an exhaustive list. The numbers here represent bodily injury coverage per person/bodily injury coverage per accident/property damage.

  • Alabama- 25/50/25
  • Alaska- 50/100/25
  • Arkansas- 25/50/25
  • California – 15/30/5
  • Delaware- 50/25/10
  • Florida – -/-/10 (Florida has an optional bodily injury coverage limit)
  • Georgia – 25/50/25
  • Hawaii – 40/20/10
  • Indiana – 25/50/25
  • Maine- 50/100/25
  • New York – 50/25/10

It is advisable to have a liability insurance coverage limit greater than the minimum limit. Medical bills are expensive and if your policy is inadequate, you may have to pay out of pocket. The downside of having a higher coverage limit is paying more premiums. You can save on premiums by choosing car insurance companies with the lowest annual car insurance costs, but even higher coverage would require slightly higher premium costs.

Some people also consider having umbrella insurance which can cover additional costs in case liability insurance is not enough to cover damage or injury.

And it was just a matter of liability insurance. It is very important to have and can save you a lot of trouble in the event of an accident.