What is auto liability insurance? | Car insurance

Automobile liability insurance is a popular type of coverage that provides financial protection if you are found legally responsible for an accident resulting in injury, death, or property damage. Automobile liability insurance may also apply if someone else is driving your vehicle and is at fault in an accident. Most states require drivers to have a minimum amount of liability coverage, although the amount varies from state to state.

If you are at fault in a collision, liability insurance will cover the medical expenses incurred by those injured as well as the costs associated with the resulting property damage. While policy specifics vary from provider to provider, liability insurance generally includes the following two types of coverage:

  • Bodily Injury Liability (BI): If you are at-fault in an accident, this will cover the medical costs of those injured in the accident. It will also cover lost earnings resulting from injuries sustained, as well as costs associated with pain and suffering.
  • Property Damage (PD) Liability: This covers the cost of repairing or replacing items damaged in the accident. This can include damage to other vehicles and other types of property, such as houses, fences and storefronts.

Understand the limits of liability

All liability auto insurance policies have limits, or how much an insurer will pay on a claim. Liability coverage limits are divided into three categories:

  • Bodily damage per person
  • Accidental bodily injury
  • Material damage by accident.

When viewing an auto insurance policy, you may see coverage limits listed as three numbers separated by a slash. For example, a 25/50/25 liability policy includes:

  • $25,000 in bodily injury coverage per person
  • $50,000 in bodily injury per accident
  • $25,000 in property damage per accident.

Many insurers also offer combined single limit (CSL) policies. Under this policy structure, your liability limit is a single amount — $300,000, for example — as opposed to a single amount for each class of liability. If you have a lot of financial assets that you want to protect, you might consider a combined single limit policy.

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Liability policies do not cover the following:

  • Damage to your vehicle
  • Injuries or related expenses that you or your passengers sustain after an accident
  • Expenses (medical, property damage or otherwise) that exceed your policy’s liability limit.

If you are looking for additional coverage, you may want to consider adding one or more of the following types of insurance to your policy:

  • Personal Injury Protection (PIP) the insurance covers medical expenses for you and your passengers if you are injured in a car accident. It can also cover related expenses, such as lost wages.
  • Collision coverage will pay for repairs if your car is damaged in an accident and you are at fault. It also pays for repairs if you are in a “collision” with other objects, such as a tree, retaining wall, or house. Some policies extend coverage to rollovers, hit-and-runs, and even pothole damage.
  • Full coverage will pay for repairs or replacement if your car is damaged in anything other than a collision. This may include hail damage, falling object striking the vehicle, flood damage or vandalism. It also provides protection if your car is stolen or your windshield is cracked or shattered.
  • Coverage of medical payments (MedPay) pays eligible medical expenses for you and your passengers, regardless of who is responsible for the accident. This includes ambulance costs, doctor and hospital visits, and co-payments and deductibles for health insurance. It can even cover you if you are hit by a car while riding your bike.

If you’re driving in the United States, you’ll likely need basic liability insurance. Today, most states and the District of Columbia have laws that require drivers to carry liability insurance, although the type and amount may vary.

If you live in one of the few states that allow you to opt out of liability coverage or have no minimum coverage requirements, you may still need liability if you are financing your vehicle. Indeed, many lenders require drivers to take out full coverage (liability, accidental damage and collision) until their loan is paid in full.

The best way to determine if you need liability insurance is to contact your state’s Department of Motor Vehicles or Department of Insurance. A qualified insurance agent licensed to sell coverage in your state can also help you determine the amount, if any, of liability insurance you need.

To determine the amount of liability insurance coverage you need, start by checking your state’s liability limit requirements. You can learn more about your state’s minimum liability limit requirements by contacting your state’s Department of Motor Vehicles, visiting their website, or speaking with a licensed insurance agent or broker in your area.

Another factor to consider is the value of your personal property and your ability to meet all the financial responsibilities that arise after a collision. Although a minor bumper bend does not involve major expense, a serious accident, or one that results in significant property damage, can be costly. If your state minimums are low, you may find that they will not sufficiently cover liability expenses if you are at fault in an accident.

Residents of Pennsylvania, for example, are only required to carry $5,000 property damage liability insurance. If you’re responsible for an accident that results in $15,000 of damage to another vehicle, multiple vehicles, or someone’s property, you could be responsible for the remaining $10,000. And, if you are unable to pay, you can be sued.

With this in mind, the value of your personal property can help you determine if the minimum liability coverage required by your state is sufficient or if it is better to choose a policy with higher limits. The Insurance Information Institute, an organization that provides insurance information and resources to consumers, recommends carrying sufficient liability insurance to protect your personal property, including your home and bank accounts.

As is often the case with insurance costs, liability insurance costs vary depending on many factors, including the limits you select, your driving record, your age, where you live, how often you drive and the value of your vehicle.

Also, take note of any discount or savings opportunities offered by insurers. Many car insurance companies offer discounts to qualifying drivers.

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