Const & Coverage
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Liability car insurance is the most important part of your car insurance policy, but what exactly does it cover? And how much coverage do you need?
Liability car insurance is the most crucial component of your car insurance policy, providing coverage in the event that you cause an accident and hurt someone or damage their property. Every state that requires car insurance mandates that you also have bodily injury and property damage coverage, and there are a couple reasons for this.
Car accidents are expensive, running into the tens and sometimes hundreds of thousands of dollars in repairs, medical bills, legal costs, property damage, and lost wages (if the person you injure is forced to miss work). A worst-case scenario without car insurance could potentially bankrupt the at-fault individual if they’re sued or forced to pay for damages. And worse, the onus may be on the person with insurance to cover the expenses caused by the at-fault individual, which, if they don’t have uninsured liability coverage, they may have to for pay out-of-pocket.
Read on to learn more about car insurance and how it works:
Just about every auto liability insurance policy contains three major components: liability insurance for bodily injury, liability insurance for property damage, and uninsured/underinsured motorist coverage. (These components are pertinent to tort states, or at-fault states. In no-fault states — states where drivers are responsible for their own medical bills and property damage, regardless of fault — the liability part is different, but more on that later.)
Bodily injury liability insurance doesn’t cover you or your car directly, but it does cover the other person in the accident. It protects you against the injured party’s claims for damages, such as medical expenses, lost wages, pain and suffering and sometimes legal fees. What exactly is covered varies from state to state and policy to policy.
The rule of thumb for prospective buyers is to purchase the highest bodily injury liability coverage limit they can afford. If your coverage isn’t enough to pay for all injury-related costs in an accident you caused, you are susceptible to lawsuits for the remainder of what you owe out, putting financial assets (like your home) in jeopardy.
Property damage liability coverage pays for the damage you cause to someone else’s property. This type of liability coverage does **not** cover your own vehicle. For this, you need to add on collision coverage or comprehensive coverage.
Typically, property damage liability insurance covers repair and/or replacement of damage to their vehicle, house, buildings, lampposts and telephone poles. Exactly what specific types of property is covered varies according to your policy and coverage amount, so be sure to read the contract carefully or talk to your insurance agent.
Uninsured motorist coverage protects you directly. If someone crashes into you, or hits you, or you’re injured in a hit-and-run and there’s no liable party to file the claim, you’re paid for medical expenses under this coverage. This type of liability coverage takes the place of the insurance the other driver _should_ have had, but didn’t.
Like uninsured motorist coverage, underinsured motorist coverage also protects you directly, except this component applies when the other driver has coverage, but not enough to cover the liability expenses caused by the damages you sustained. Underinsured motorist coverage pays you an additional amount up to whatever limits you chose for your policy.
Like standard liability insurance, uninsured and underinsured motorist coverage has two coverage types: bodily injury and property damage, and is more specifically referred to as uninsured/underinsured motorist bodily injury coverage (UMBI) and uninsured/underinsured motorist property damage coverage (UMPD).
Because there are people cruising around without insurance — one in eight drivers, in fact, according to the Insurance Research Council — some states now require drivers to have at least some form of uninsured motorist coverage, if not both uninsured and underinsured motorist coverage. But even if it isn’t law, you should still consider adding this helpful piece of coverage to your car insurance policy to avoid paying out-of-pocket expenses.
In “no-fault” states, there is no need to determine who was at fault for an accident to receive payments for injury claims. No-fault liability car insurance — currently law in 12 states — requires each party file a claim with their individual insurer, which limits lawsuits, but understandably brings questions of fairness into the fold, as irresponsible motorists are sometimes said to get off “scot-free.” While no-fault states don’t completely eliminate the chances that faulty drivers will get sued, it does limit the circumstances under which they can be sued.
Residual bodily injury liability coverage extends the financial protections offered by no-fault insurance if the accident results in a lawsuit. Individuals or companies with a base no-fault policy can expect their carrier to pay its claims for injuries, damages, or accident-related lawsuit expenses under personal injury protection (PIP). However, this has its limits, and won’t protect against lawsuits or accidents that run too high and exceed their threshold. Residual liability insurance offers increased protection in the event that multiple people are affected by an accident and it results in several injuries or death.
Residual liability insurance also provides protection to motorists in accidents outside the state they’re insured, providing important liability coverage for businesses that often cross state lines often, like truck companies or moving services.
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Liability coverage is sold taking three liability instances into account: the maximum amount you’ll need to cover a single person’s injuries; the maximum amount you’ll need to cover multiple people’s injuries; and the maximum amount you feel you’ll need to cover the total property damage in an accident. They are typically displayed as three amounts separated by slashes, so if you purchase liability coverage that looks like 50/200/50, that would mean you have coverage of:
$50,000 in bodily injury liability per person
$200,000 in total bodily injury liability per accident
$50,000 in property damage liability per accident
It’s generally suggested that you spend more on liability insurance if you don’t think you can afford a hefty medical bill, and most states require liability coverage in the range of $25,000 to $50,000. It's important to ask yourself, how much can I afford to pay out-of-pocket if I get into an accident?
And although state minimums will usually cover routine fender benders, accidents involving serious property damage, injuries, or even fatalities could end up being too high for you to afford to cover the rest on your own after the minimum is paid out. Depending on the state you live in, required coverage can vary.
Property damage is indeterminable and generally difficult to put a price on this type of coverage, so make sure you plan ahead and consider every scenario when setting a maximum for your policy. Be sure to purchase the coverage amount you feel comfortable with and find affordable.
Liability coverage is the most essential form of car insurance, and at Policygenius, we have the agents, tools, and resources to guide you through the complex insurance jargon and make sure you understand what car insurance is before you buy.
Most car insurance policies also extend to rental cars, but you’ll want to talk with your agent to determine if the coverage suffices or whether you should add on to your current policy. If you’re unfamiliar with a car you’re renting, or if an individual on your policy is renting a car, you may feel more at ease increasing the liability max, as that vehicular unfamiliarity may make you or your family member more at-risk for accidents.
Rental car companies are actually required by law to carry a state’s minimum amount of liability insurance coverage on their cars, so they offer their own liability insurance for a small, per-day fee to cover damages to someone else’s car and/or its passengers in an accident. They sell it as supplemental liability insurance (SLI) and it runs about $8 to $12 a day. If you rent a car and don’t have car insurance, it’s strongly suggest that you add on SLI.
If you want coverage for vehicular liability but you don’t own a car, there are a few coverage options for you besides the SLI offered by a rental car company.
This type of coverage is valuable if you drive other people’s cars around often, but don’t have your own car. It primarily covers liability — bodily injury and property damage — and is fairly limited beyond that, as personal injury protection (covers medical expense you incur as the result of an accident you caused) and uninsured/underinsured motorist coverage aren’t always offered on non-owner car insurance policies.
The car owner’s auto insurance policy will generally cover you, but only up to a certain limit, so if you get into a bad accident and it exceeds what their policy will pay out, the rest may be on you. Non-owner car insurance acts as an extension of the car owners existing policy, and will cover the rest if accident costs are excessive. It also may be a good idea to get non-owner liability coverage if you rent for, say, a week or more per year. SLI from the rental car company is often more expensive and it offers less protection than non-owned car insurance.
Non-owned liability car insurance should be avoided if you borrow cars infrequently, such as a couple times a year for a day or two at a time. Going through the trouble of taking out an entire policy and paying premiums throughout the year just isn’t worth it.
On the flip side, you should avoid non-owned liability car insurance if you’re borrowing a car for a long period of time, as the coverage won’t suffice if you’re driving your buddy’s car around for an entire season. In this case, we suggest buying a regular insurance policy that provides necessary comprehensive, collision, and other types of liability coverage not available in a non-owners policy.
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