In just about every state within the country, you need a car insurance policy to register and drive a car legally on the roads. However, most people aren’t aware there are different car insurance types, and more specifically, what is liability car insurance?
What is Liability Car Insurance?
Liability car insurance is automobile coverage that pays for another driver’s expenses if you cause an accident and damage their car, or they are injured in the accident and require medical care. This type of insurance is required by law in all but two states (Virginia and New Hampshire).
There are two different types of liability car insurance. The first is “bodily injury liability coverage,” and this type pays for the medical expenses if someone is hurt in an accident that you caused. The other type is “property damage liability coverage,” which pays for repairs to the property you damaged in an accident. It may be automobile damage or other things like personal property (fences, stone walls, buildings, etc.) that you hurt with your car. States other than Virginia and New Hampshire require that drivers have both types.
What are the Three Types of Car Insurance?
There are three main types of car insurance, liability, collision, and comprehensive coverage. Although most Americans have auto insurance, they have no idea about the different types of coverage or what they mean.
Liability coverage is a legal requirement to drive in most U.S. states. It covers bodily injury and property damage for any accidents that you cause.
Collision insurance is available to drivers and will repair your vehicle or replace it in the event of a serious accident where damage was sustained, or the car is declared a total loss.
Comprehensive is like an umbrella policy providing additional coverage if you get into an accident with another vehicle. It can help pay for damages to your car but also includes vandalism expenses and repair costs due to weather issues like hail and animal damage. Comprehensive coverage may also pay for your bodily injury costs and medical expenses if you are hurt.
There are also additional add-ons like uninsured motorist insurance or underinsured motorist insurance that covers you if another driver hits you, but they have little or no insurance to cover your expenses. Some other types you may see are medical payments coverage, personal injury protection, and gap insurance to cover anything that falls through the cracks.
How Does Liability Car Insurance Differ from Other Types?
One of the most significant ways liability car insurance differs from other types is that most states legally require it. The liability coverage limits may vary from area to area, but in all but two states, you must have liability insurance to drive on the roads.
Another big difference is that liability auto insurance covers medical expenses and property damage paid to the other driver if you cause a car accident or are deemed “at fault” by the police or insurance company. Although liability coverage pays for property damages and repairs for the other driver, it typically does not cover the repair or replacement of your vehicle. If your car is damaged by weather, vandalism, or animals, it also won’t cover those expenses.
When Should I Drop My Car Insurance to Just Liability?
Insurance is designed for catastrophic events that often never occur, so you end up paying a lot for insurance when you don’t need it. If you are budget-conscious and a good driver, it might make sense for you to downgrade your car insurance to just the legal limits for liability. Some things to think about when deciding whether or not to drop additional coverage are:
- What are the legal liability limits you need to carry in your state?
- How much car insurance can you easily afford?
- Could you pay for any out-of-pocket expenses in the event of an accident?
- How much is your car worth, and could you replace it easily after a major accident?
- How much is your auto insurance policy deductible?
These questions will help frame your situation and help you decide if dropping additional car insurance coverage whether a collision or comprehensive coverage makes sense. If you live in an area where vandalism or theft is common, you may want to hold onto your comprehensive coverage. If you have had a few minor accidents, collision coverage could help save you thousands if you get into another accident.
If, however, you have a healthy nest egg and replacing or repairing your car won’t break the bank, it might be wise to drop the additional coverages. Why waste money on an expense you don’t need? If, however, your budget is tight and you could not easily replace or repair your vehicle, and the insurance premiums are cheap enough, it’s better to keep the auto insurance coverage in place to keep driving even if you have an accident.
Another reason why you might want to drop collision insurance is if your vehicle isn’t even worth as much as your deductible. If your car is totaled, the insurance company won’t pay you a dime until you paid the deductible, so it makes no sense to have the policy.
In some cases, just reviewing your policy and insurance rates with your insurance agent may identify where you are carrying too much insurance. You can reduce your insurance costs by lowering those policy limits or raising your deductible and exploring other insurance products.
If a change in job allows you to work from home and you aren’t driving as much, this is another good reason to drop your extra coverages since you aren’t putting as many miles on the car or getting into traffic situations as often.
What Is/Isn’t Covered by Liability Insurance?
Liability insurance is essential because it covers the other driver if you are the "at-fault driver" of a car accident and you injure the other party or damage their car or personal property. Your insurance company will pay their medical bills and to repair or replace their vehicle.
Some things that liability insurance does not cover are the replacement or repair of your vehicle after an accident (regardless of whether it was your fault). It also does not cover vandalism or damage caused by flood, fire, hail, or other weather-related issues. It does not cover theft or your own medical payments if you are injured in an auto accident.
How Much Does Liability Coverage Cost?
Each U.S. state requires different limits for liability car insurance coverage, but the national average cost for liability insurance is $290 a year. However, this figure will depend on a few factors like the area you live in, your insurance company, your driving history, and your state's minimum limits.
Proper Minimum Coverage Limits, and How Much You Should Have
Minimum coverage limits vary per state, but a couple of typical coverage scenarios for liability insurance is:
- 25/50/10 - meaning you must carry a minimum amount of $25,000 bodily injury limit per person, $50,000 bodily injury per accident, and $10,000 property damage limit.
- 100/30/50 - meaning $100,000 bodily injury minimum limits per person, $30,000 bodily injury per accident, and $50,000 property damage limit.
If your limits do not cover damages incurred by the other driver, they can sue you for medical expenses and property damage excess.
Each state requires different limits for liability coverage, and they vary widely. For example, Florida has some of the lowest limits requiring only 10/10, meaning $10,000 of bodily injury coverage and $10,000 of property damage coverage. On the other hand, Wisconsin and Washington D.C. require much higher bodily injury coverage limits and uninsured motorist coverage as well. Pennsylvania also requires $15,000 of medical benefits coverage along with full coverage limits of 15/30/5 for liability coverage. Some states, like New York, even require a payout for the death of someone in a car accident.
Deciding how much liability insurance coverage you need may include many factors such as your net worth, your driving habits/record, the area where you live, and typical medical expenses. You should sit down with your auto insurance agent to discuss all these elements to come up with a package that fits your needs, budget, and lifestyle.