What is Liability Insurance? Here is All You Need To Know

What is Liability Insurance?

Virtually all states in the US require you to carry proof of insurance on your vehicle before you can be allowed to drive legally on the road. The minimum insurance required of you is Liability Insurance. This type of insurance covers your legal liability if you cause an accident up to the limit set in your insurance policy.

What Does Liability Insurance Cover?

Liability insurance covers the cost of property damage and bodily injury to other people and can also help keep you out of court. In essence, it protects you from paying enormous expenses out of your pocket.

What Does Liability Insurance Not Cover?

Liability Insurance does not cover any expense you incurred. If you cause an accident and your car is damaged or you sustain injuries that require medical attention, liability insurance won’t pay for the costs of damage to your car or treatment for your injuries. Also liability insurance won’t cover damage to your car by fire, theft and vandalism. You will need Collision Coverage for these.

So, it’s not advisable to only get liability insurance. Addition of other packages such as Collision Coverage (covering car repair or replacement and bodily injuries costs to you and other people), Comprehensive Coverage (covering damage to your car by theft, vandalism, fire, etc.) is recommended. With these three packages, you are guaranteed full coverage that will settle all expenses related to collisions and other accidents involving your vehicle or another.

What Are the Limits of Liability Coverage?

The sky is definitely not the limit for most type of insurance policies. A policy limit is simply the maximum amount an insurer will pay for a particular kind of coverage.

US states have minimums for liability coverage; your insurance provider will tell you more. However, it is recommended that you set limits above the state’s minimum because the state-mandated minimums are far below the industry’s definition of adequate coverage.

Here are the liability limits that are recommended no matter the state you live in:

  • $100,000 for bodily injury (per individual)
  • $300,000 for bodily injury (per accident)
  • $100,000 for property damage (per accident)

In order to attain these levels of coverage, you will need to determine whether you will opt for high monthly premiums or high deductibles.

What is a deductible: A deductible is the amount you agree to pay upfront before your insurance coverage steps in. A high deductible equals a lower monthly premium.  Choosing a high limit over low deductibles will help protect you in worse-case-scenario.

Take a look at these examples, though they are exaggerated:

  1. You bought a policy that has a high deductible pegged at $3,400 with your limits set above $300,000 and caused an accident that incurred $280,000 in damages. You will only forfeit $3,400.
  2. You were happy you bought a policy having a low deductible set at $400 and your liability limit set at $30,000 – a $250,000 accident will leave you with a $220,400 bill to pay. A bill that could make you a debtor for the rest of your life.

That is why it is recommended you have higher deductibles if you want to lower your car insurance costs. But if you aren’t comfortable with setting high deductibles, you can opt for high monthly premium.

Always consider your driving habits and geographical location when adding liability coverage package in your insurance policy. Setting high deductibles and low limit will be reasonable if you drive very little in a rural area with low risk. On the other hand, if you drive 30,000 miles a year, your risk of an accident is high and high monthly premiums may leave you with peace of mind.


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