What Is Liability Auto Insurance and How Does It Work?
Liability car insurance covers other motorists when you’re behind the wheel.
Liability auto insurance is the bedrock of any good policy. Most states require some form of liability insurance to legally operate an automobile, and it’s often the most expensive component of a full coverage policy.
What’s more, you don’t want to cut corners with this coverage. You could face financial ruin without enough liability insurance to cover the cost of repairs and medical expenses from an accident that you cause.
What Is Liability Auto Insurance?
Liability car insurance pays for any property damage or bodily injury you cause in a car accident. It will also cover legal expenses if you’re being sued as a result of a collision for which you’re responsible.
Here are a few scenarios where you might use liability auto insurance:
- Damages to another car if you rear-end one on the highway
- Damages to a homeowner if you jump a curb and crash into a mailbox or fence
- Medical costs for another driver if they’re hurt during an accident that you cause
Liability makes sure others are taken care of in an accident. It will not pay for your car repairs or medical expenses. That’s the job of other coverages in your auto insurance policy.
Do You Need Liability Auto Insurance?
Nearly all states require motorists to carry some form of liability insurance to legally operate a vehicle. The only exception is New Hampshire. Its residents can drive without having any car insurance whatsoever, but they must have sufficient funds to meet their state’s motor vehicle financial responsibility requirements in the event of an at-fault accident.
Otherwise, each state sets mandatory coverage minimums for its residents, and both policy limits and types of coverage vary by location. For example, policyholders in New Jersey are required to have liability, personal injury protection, and uninsured/ underinsured motorist coverages. Ohio residents, however, will only need to carry liability coverage. Visit your DMV’s website for local insurance guidelines.
How Much Does Liability Auto Insurance Cost?
The nationwide average cost for liability auto insurance is $1,070 per year, or about $90 a month, according to the latest data from the National Association of Insurance Commissioners (NAIC).
Keep in mind that these types of mean averages make assumptions about the vehicle being insured, as well as its driver. Not every policyholder is blessed with a perfect driving record and stellar credit score.
In truth, rates vary from provider to provider, and the cost that you’ll pay for liability insurance will further be determined by a variety of cost variables, including:
- Claims history
- Credit score
- Driving experience
- Driving history
- Marital status
- Miles driven
- Vehicle type
- Vehicle value
For a good deal on liability-only insurance, your best bet is to get rate quotes from several providers and then compare the offers. Be sure to request quotes for similar coverage limits and deductibles, so that you’re not comparing apples to oranges.
Deal seekers who prioritize price above all else might find what they’re looking for with our guide to the cheapest car insurance companies. Moreover, motorists who use these money-saving strategies may be in line for big savings on their liability-only insurance.
How Does Liability Insurance Work?
If you’re at fault in a collision, liability auto insurance will compensate other motorists for property damage and injuries that you cause. Liability policies generally have two components: bodily injury and property damage. They each provide motorists with distinct protections.
Bodily Injury Liability
Bodily injury liability covers the medical expenses of others who are injured in a car accident when you’re at fault. It can also pay for ongoing treatments and lost wages in more serious collisions, and even funeral expenses after a fatal accident.
Property Damage Liability
Property damage liability pays for any repairs to another vehicle as a result of an accident that you cause. It can also cover personal possessions that were in the victim’s vehicle at the time of the collision. It will also pay for attorney fees if you’re sued after an accident.
Liability coverage limits
Liability policies also have coverage limits, which is the maximum amount an insurance provider will pay per claim. When a claim exceeds a limit, you’re on the hook for paying the rest. You can opt for a policy that pays more in the event of an accident, but higher limits also cost more. In fact, along with your deductible, coverage limits drive the cost of your premium.
Furthermore, a liability policy will usually have three separate limits, and they each work differently.
- Bodily Injury Liability Limits Per Person: The maximum amount an insurer will pay for each individual injured in an accident.
- Bodily Injury Liability Limits Per Accident: The maximum amount a policy will pay for medical expenses per claim. This is an overall payout cap that restricts the per person limit. For example, if a policy pays a total of $50,000 and the insured injures 10 people who each have $5,500 in medical costs, the policyholder would be responsible to pay the remaining $5,000 out-of-pocket (10 x $5,500 - $50,000 = $5,000).
- Property Damage Liability Limits: The maximum amount a policy will pay in a property damage claim.
A typical liability policy’s coverage limits are listed as three separate numbers that indicate its maximum payout amounts. As an example, a 100/300/50 liability policy means:
- $100,000 bodily injury per person
- $300,000 bodily injury per accident
- $50,000 property damage per claim
With the exception of New Hampshire, each state sets its own minimum liability limits, and you are legally required to carry the basic amount of coverage. As an example, Arizona’s minimum is 15/30/10, while Georgia’s is 25/50/25. Your local DMV will have guidance for coverage limits in your state.
How Does a Deductible Work?
Your liability deductible is the amount you pay each claim before your insurer covers the rest. You’re likely to see deductibles around $500, but $250, $1,000, and $2,000 are also common. Here’s how a liability deductible works:
- You cause $2,500 of property damage
- Your deductible is $1,000
- Your policy pays a total of $1,500
- $2,500 - $1,000 = $1,500
As a rule of thumb, the higher your deductible, the less you’ll pay for auto insurance. This is because you’re agreeing to take on more financial responsibility during the claims process.
Liability Auto Insurance Example
Here’s an example that shows how liability auto insurance can protect you.
You have a 50/100/50 policy with a $1,000 deductible, and your collision with another vehicle results in:
- $15,000 of property damage
- $10,000 in medical costs for the other driver
- $10,000 in medical costs for the other passenger
In this scenario, your liability insurance will cover all damages after you pay the deductible.
- Damage to the other vehicle is within your property damage limit ($15,000 < $50,000)
- Medical expenses for each person are within the bodily injury per person limit ($10,000 < $50,000)
- Total medical expenses also fall under the bodily injury per accident limit ($20,000 < $100,000)
Here’s what your claim would look like:
- Property damage: $15,000
- Total medical costs: $20,000
- Your deductible: $1,000
- Your insurance pays: $34,000
What is Not Covered?
Liability insurance doesn’t cover your medical expenses or repairs to your vehicle. It’s primarily designed to cover other people when you’re behind the wheel. The exception is no-fault states, which require liability policies to cover personal injury. In these 12 states, motorists often carry personal injury protection (PIP) along with bodily injury and property damage liability.
In any event, if you want to cover your own expenses, then consider these additional protections:
- Comprehensive: Covers your vehicle from non-accident damage such as fire, theft, or vandalism.
- Collision: Covers damage to your vehicle caused by an accident, regardless of fault.
- Medical payments: Covers medical costs, funeral expenses, and loss of wages for both you and your passengers, regardless of fault.
- Uninsured and underinsured motorist: Covers medical and property damage expenses when the at-fault motorist is inadequately insured.
FAQs About Liability Insurance
You’ve got questions. The Drive has answers.
Q. What’s the cheapest liability car insurance?
A. The cheapest liability-only car insurance is often found with Geico, Nationwide, and State Farm, according to our research. But military households will surely receive their cheapest liability-only policy with USAA, which is an insurer that works exclusively with active-duty service members, veterans, and their families.
What you’ll pay for liability insurance will be determined by a variety of factors, like where you live, your driving record, and your vehicle’s value, to name a few. All insurers estimate risk differently, so if one’s quote is too high, you may find better value with another provider.
Q. How much liability auto insurance do I need?
A. How much liability insurance you’ll need depends on your state’s minimum liability limits. It can be as low as 10/20/10 or as high as 50/100/25. Your local DMV can provide more specific guidance. But when you’re shopping for insurance, keep in mind the value of your vehicle and the likelihood that you’ll experience some form of accident, whether it be a storm, collision, theft, or otherwise.
Many insurers recommend a 100/300/50 liability policy that provides $100,000 bodily injury per person, $300,000 bodily injury per accident, and $50,000 property damage per claim. However, a 50/100/50 liability policy should be sufficient coverage for those who are on a budget.
Q. Does liability insurance cover my car if someone hits me?
A. Kind of, but not really. Your liability insurance covers the expenses of other drivers when you cause a car crash. However, should a motorist hit you, their liability insurance will cover your property damage and medical expenses. In effect, your liability insurance only covers other vehicles, not your own. This is why many policyholders will carry additional insurance that covers their vehicles no matter who or what causes damage.
Q. What’s the difference between full coverage and liability?
A. Along with collision, comprehensive, and medical payments, liability is one of several insurances included in a full coverage policy. Liability will pay for the expenses of other drivers when you cause a car wreck. But the other insurances in a full coverage policy will pay for your property damage or medical expenses, regardless of how an accident occurs.
Q. When should I drop full coverage on a car?
A. You should drop full coverage insurance when it costs more than your car is worth. For instance, if it costs you $1,800 annually, but your car is only worth $1,200, then full coverage may not be worth it. Most vehicles depreciate in value as they age, so older cars and trucks will often have less need for full coverage insurance. Refer to the Kelley Blue Book for the dollar value of your vehicle.