Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 21, 2020

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Key takeaways...

  • In almost every state, not only is driving without at least liability insurance risky, it’s illegal
  • Liability insurance will pay for damages to someone else’s car, medical expenses for someone you may have injured, or real property damaged in an accident
  • Obviously, the more coverage you carry, the more expensive your policy will be, so you must balance the level of coverage you wish to carry with the total cost you can afford to pay in premiums every month
  • Reviewing your liability insurance policy with a well-versed insurance agent is a great way to assess your current level of coverage and whether or not increasing or decreasing your limits will be of benefit to you

When it comes to car insurance, selecting the right coverage can be tricky. In almost every state, not only is driving without at least liability insurance risky, it’s illegal.

Having liability insurance not only protects you financially in an accident situation, it is also socially responsible. So, here are a few things you should know before taking out a car liability insurance policy.

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Table of Contents

Liability Insurance Pays for Damages Caused to the Property of Others

The idea behind carrying liability insurance is not to protect your investment, i.e. your car or other possessions, it is to make sure that you are financially prepared to pay for any damage you may cause, at fault or not, to someone else’s property or person.

Liability insurance will pay for damages to someone else’s car, medical expenses for someone you may have injured, or real property damaged in an accident.

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Liability Insurance is Expressed in Limits

The numbers beside your liability coverage designate how much your insurance company will pay on your behalf in the event that you damage property or injure someone. For example, a basic liability insurance policy may have limits expressed as 20/40/10.

This means that you are covered for up to $20,000 in bodily injury damages per person, $40,000 in bodily injury damages per accident and $10,000 in property damage per accident.

If the monetary value of your accident exceeds your liability coverage limits, you will be on the hook to come up with the difference between your coverage amount and the balance of the damages.

It’s important to know how much liability car insurance you need and how much you can afford.

Liability Insurance Limits are not Transferrable

In an accident situation where you are at-fault and you cause $65,000 in property damage but only $5,000 in bodily injury damage, your basic liability coverage will pay the medical bills of the party you harmed in full, but you will be on the hook for the additional $55,000 in property damage caused.

Even though your liability policy allows for additional money to be paid on your behalf, the limits on your property coverage were met and the balance of other coverages are not transferable to offset the property damage balance.

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Liability Limits Can Be Raised or Lowered Based on Individual Preferences

Liability policies can be written to have a number of different limits.

Obviously, the more coverage you carry, the more expensive your policy will be, so you must balance the level of coverage you wish to carry with the total cost you can afford to pay in premiums every month.

In some cases, if you are a low-risk driver, meaning that you have had few accidents in your driving past, you obey traffic laws, have more money in the bank, and are a more experienced driver, it might make sense to carry lower limits on your liability policy and prepare for the possibility that you may have to pay out of pocket for an accident you may become involved in.

These types of drivers should ask their insurance companies about their good driver discount.

However, for less experienced drivers, less financially stable drivers, or drivers who have shown to be more aggressive behind the wheel, having higher liability limits makes more sense.

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Liability Insurance Does Not Cover Any of Your Personal Property

Having liability insurance does protect you from having to bear the total cost of an accident when it comes to paying for damage caused to others’ property or person, however if your vehicle is stolen, damaged in an accident that is not your fault or becomes damaged by fire, flood or other natural disasters, liability insurance coverage will not pay for your loss.

This is where other coverages including collision, comprehensive, and uninsured driver come into play.

Adding these coverages to your liability policy is commonly known as having “full coverage” insurance and is usually required by lienholders if you have a loan against your vehicle.

These other coverages are not required by most states when it comes to insuring your vehicle, but can definitely protect your investment in the event there is damage to your vehicle where liability coverage is not applicable.

Combining liability policies with other coverage policies will ensure that you and your vehicle are protected in almost any situation that can arise, whether you are driving or not.

Having liability insurance protection is a great way to protect yourself from financial loss resulting from an accident and is required in all states except New Hampshire, regardless of your ability to pay for damages resulting from an accident.

Reviewing your liability insurance policy with a well-versed insurance agent is a great way to assess your current level of coverage and whether or not increasing or decreasing your limits will be of benefit to you.

Make sure to consult your state’s financial responsibility laws to determine whether or not your liability insurance policy is adequate to satisfy your financial responsibility obligations in your state and review your policy often as your financial and driving situation can change over time.

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References:

  1. https://www.investopedia.com/terms/a/automobile-liability-insurance.asp
  2. https://www.kiplinger.com/article/insurance/T004-C000-S001-liability-coverage-in-case-you-re-at-fault.html
  3. https://wallethub.com/edu/liability-car-insurance/7300/
  4. https://www.thebalance.com/understanding-minimum-car-insurance-requirements-2645473
  5. http://guides.wsj.com/personal-finance/insurance/how-much-car-insurance-do-you-need/