Home What is Automobile Liability Insurance and How Does It Works?

What is Automobile Liability Insurance and How Does It Works?

by Tony Arevalo
Liability Insurance Guide Cover Photo

What Is Liability Car Insurance?

Liability is the bread and butter of auto insurance. It’s mandatory everywhere in the US besides New Hampshire and the District of Columbia. This is the car insurance coverage that pays for the damages caused to others (physical injury and property) in a car accident for which you were at fault.

However, do you know how the two types of automobile liability insurance work and what limits you need? We at Carsurance are here to help you. We’ll discuss the types of liability insurance, give recommendations on how much coverage you should consider, and detail the other primary types of insurance coverage, as well. Read on to learn everything you need to know about liability insurance and how it relates to collision and comprehensive coverages.

What Does Liability Car Insurance Cover?

Liability insurance pays for the bodily injury and property damage you’ve inflicted on others. To trigger the liability payment, it’s crucial that you were at fault in the accident. There are three separate limits (the maximum amount an insurance company will pay) for liability insurance.

An Illustration of The Items Covered By Liability Insurance

Bodily Injury Liability per Person Limit: This coverage pays the medical payments, pain and suffering, lost wages, and similar expenses of the injured party. These costs can pile up fast since it can include expenditures like hiring dog walkers for someone who was too injured to accomplish the task.

Bodily Injury Liability per Accident Limit: This is the maximum an insurer will pay for medical expenses in a single accident under automobile liability coverage.

Let’s take a situation where the limit per person is $50,000, and the limit per accident is $100,000. If three persons were injured, with medical expenses of $25,000, $40,000, and $45,000, an insurance company would not pay $110,000, but only $100,000, which is the maximum payout for a single accident.

Property Damage Liability Limit: This coverage pays for the damage you’ve caused to other people’s property. Most often, it’s their car, but it may include personal belongings like a tablet, laptop, or watch, or even stationary property like a mailbox or fence.

How Does Car Liability Coverage Work in No-Fault States?

In no-fault states like New Jersey and New York, every driver’s coverage pays their own medical expenses, regardless of their fault. This means that personal injury protection (PIP) plan will cover the medical expenses instead of liability. It may also include lost wages, and any similar expenses you and your passengers may have. PIP insurance is mandatory in 12 states: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah, as well as the District of Columbia. 

Sometimes, your health insurance can replace your PIP. However, it doesn’t reimburse lost wages, nor does it cover other drivers. Furthermore, many health insurance plans exclude vehicle-related payouts.

How to Choose Automobile Liability Insurance Limits

Insurance companies usually package property damage and bodily injury limits together. This means that the offer will typically look like $25,000/$50,000/$10,000. In other words, you’re getting $25,000 per person, $50,000 per accident for bodily injury, and $10,000 for property damage. A combination with higher limits would look like $100,000/$300,000/$50,000.

Many people wonder how much protection they actually need. Should you choose cheap liability car insurance coverage or opt for peace of mind with a more expensive package?

You certainly can’t go below your home state’s minimum. Some states, like Florida, have really low limits, like $10,000/$10,000 for property damage liability and personal injury protection. Other states, like Texas and Arizona, require higher limits.

However, we wouldn’t advise any customer who can afford something better to choose the state minimum. A combination of $50,000/$100,000 for bodily injury and $50,000 for property damage is the lowest coverage that would still give us a piece of mind. We all know how high medical expenses can be, and the average price of a new car is higher than ever, at around $34,000. This implies you easily risk causing property damage near $50,000 in an accident. And it’s easy to exceed that amount, meaning doubling your minimum limits is a smart thing to do.

What Isn’t Covered by Liability Car Insurance?

Liability doesn’t cover your expenses related to any damaged property and injuries from an accident. For that, you will need MedPay/PIP and collision coverages. Additionally, basic liability insurance doesn’t cover any passengers in your vehicle. However, MedPay and third-party liability provide protection in these instances.

Furthermore, liability doesn’t cover any damages to your car when it isn’t being driven, like theft, a tree falling on it, flooding, etc. Comprehensive coverage is the protection plan for that.

How Much Is Liability Car Insurance?

Liability-only policies are significantly cheaper than what we would consider full coverage. Event with higher limits, like $50,000/$100,000 for bodily injury and $50,000 for property damage, the prices are quite affordable. On average, a customer will have to pay 2–3 times more for full coverage. See the tables below for the liability-only car insurance monthly prices for various age categories in different US locations.

The prices of liability only coverage for different age categories in different locations

What Is Third-Party Liability Insurance?

Per definition, this coverage pays the damages and injuries you are legally liable for. It’s called “third party” because the beneficiary isn’t the insured party or the insurance company, but the party that suffered the damage. When we analyzed all the legal mumbo jumbo, it looks like third-party liability includes protection for injuries to your passengers.

It’s worth noting that almost no insurance company differentiates regular liability and third-party liability on their website. They may only offer regular liability plus MepPay or PIP to cover the medical bills of your passengers.

Conclusion

Liability car insurance is mandatory in almost all US states. Many companies offer a cheap liability car insurance option that satisfies the state minimum, but we would advise a potential customer to purchase higher limits. Furthermore, we would suggest opting for what’s commonly considered full coverage. This would include underinsured/uninsured motorist, collision, and comprehensive coverages, plus some kind of medical coverage, like MedPay or PIP.

Furthermore, as with all other insurance coverages, the prices vary significantly based on the insurance company, your state, and your profile. That’s why it’s smart to explore the market.

Our auto insurance reviews will help you decide which companies are the best for you. Make a shortlist of at least five insurers, whether you’re looking for full coverage or only liability car insurance, and request a quote from all of them. It won’t take more than a couple of hours, and you will get the best car insurance possible.

Frequently Asked Questions

Does my liability insurance cover my car if someone hits me?

No. Your liability insurance covers only the damages and injuries you’ve caused to others. However, if someone hits you, you can expect payment from their insurance if their limits are adequate. To best protect your vehicle, add collision coverage.

When should I drop full coverage on my car?

Unless broader coverage is a significant financial burden, you’re better off keeping it. It provides stronger protection than just liability. For instance, you’ll be covered if your car gets stolen or if it was damaged in an accident. Furthermore, your insurance will cover medical expenses.

What is covered by liability car insurance?

Liability car insurance by definition covers the expenses of the property damage and bodily injuries you’ve caused to others. Your liability insurance doesn’t include your own vehicle or your medical bills. However, if the other driver was at fault, you can expect payment from their insurance.

What are the six types of car insurance?

Uninsured/Underinsured Motorist Coverage This protection plan compensates for the damage inflicted by a driver with insufficient insurance or no insurance at all. For example, if your $55,000 car is totaled, and their liability limit is $50,000, your insurance company will pay you the remaining $5,000.

Liability Auto Insurance This coverage pays for the bodily injuries and property damage you’ve inflicted on others in an at-fault accident.

Comprehensive – This type of insurance is there to repay any damage to your vehicle while it wasn’t in use. It covers items such as vandalism, natural disaster, fire, theft, falling objects, etc.

Collision – This coverage helps you to pay repairs or replace your vehicle after a covered accident. It always carries a deductible, and it’s a natural extension of your car liability coverage. Some companies will even reimburse the expenses of a rental car while your vehicle is being repaired.

Personal Injury Protection – This coverage pays for lost wages and the treatment of any injuries to you and your passengers. It’s mandatory in no-fault states.

Medical Payments – This coverage is similar to personal injury protection, but it only pays for medical expenses without reimbursing any lost salaries. Furthermore, it isn’t tied to the no-fault system.

Should I get rental car liability insurance?

If you already have auto insurance, it will transfer to a vehicle you are renting. Furthermore, many rental car insurance companies offer auto insurance bundled into their offer. Check our rental car insurance guide for more detail.

Can I have liability insurance on a financed car?

Yes, automobile liability insurance is mandatory if you’re getting a car loan or lease. Furthermore, the lender may require you to carry collision, comprehensive, or even GAP insurance.

Is liability the same as full coverage?

No. Liability insurance will only pay for the damages you’ve inflicted on others (destroyed property and bodily injuries, typically). This means you won’t find extensive protection with liability car insurance.

As far as full coverage is concerned, there’s no universal definition of it. Nonetheless, for the majority, it would include comprehensive, collision, and medical coverages. These will cover your expenses if an accident happens, even if it was your fault. They will also protect your vehicle from theft, natural disasters, and similar misfortunes.

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1 comment

Aronberg Law November 12, 2019 - 4:38 pm

Thanks for your valuable resources keep share the information like this…

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