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...

  • A person who has a lien on their vehicle may also be required by the lien holder or by the state in which they live to carry higher limits
  • Liability auto insurance protects a driver if they are the person who is at fault in an auto accident
  • Underinsured motorist car insurance coverage protects the policyholder if the driver is at fault and whose liability insurance is below the required coverage limits
  • The penalties for failing to have the required amount of liability insurance can be: fines, suspension of a person’s driver’s license, or jail time if there have been multiple offenses

Anyone who drives a car is aware of auto insurance. Most states require that a driver carries an auto insurance policy with a minimum coverage limit and certain types of coverage.

A person who has a lien on their vehicle may also be required by the lien holder or by the state in which they live to carry higher limits.

They may also be required to carry certain types of car insurance coverage above the regular state-mandated limits and coverage types.

Understanding the basics of auto insurance coverage is necessary in order to decide which insurance coverage to buy. 49 states plus the District of Columbia require drivers carry liability auto insurance.

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Table of Contents

What is liability auto insurance?

https://www.youtube.com/watch?v=qq4gjxq0v8o

Liability auto insurance protects a driver if they are the person who is at fault in an auto accident. “At fault” means the person who caused the accident.

There are two types of liability insurance. Bodily injury liability is insurance which covers expenses incurred by someone as a result of their actions in an auto accident.

Property damage liability covers the expenses or value incurred as a result of their actions in an automobile accident.

Liability insurance is most often expressed as three numbers. For example, if liability coverage is 25/50/25, this means that if someone is in an auto accident and they are at fault, their insurance company will pay the following:

  • $25,000 bodily injury to the other driver.
  • $50,000 bodily injury for passengers in the other car or other persons involved in the accident.
  • $25,000 property damage for damage done to vehicles or other property.

These numbers indicate what the insurance company will pay. If the amount of the other person’s medical bills or property damage is greater than the policy limits, the driver at fault is still liable for the amount the insurance will not cover.

For example, if the driver is the at-fault party in an accident and the other party incurred medical expenses of $45,000, but the bodily injury liability limit is only $25,000, the at-fault driver is still legally responsible for the remaining $25,000.

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Bodily Injury Liability Insurance

Bodily injury liability insurance covers the medical expenses of the other person, the funeral expenses of the other person if there is a death, and the loss of any income the other person had as a result of their injuries.

Bodily Injury insurance also pays for the physical and emotional stress the other party suffered because of the accident.

This is also known as pain and suffering. This insurance also covers the at-fault driver’s legal expenses. Bodily injury liability insurance does not pay for the medical bills of the driver who is at fault.

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Property Damage Liability

Property damage liability insurance covers any damage caused to another person’s vehicle or property as a result of an accident where the policyholder is at fault.

A few examples of property are a person’s fence, a person’s house, a tree, a light pole, or a guardrail. Property damage liability can also cover legal expenses if the owner of the damaged property decides to sue.

Property damage liability insurance does not cover damage to the at-fault driver’s vehicle. Both collision and comprehensive insurance cover the driver’s expenses.

Legal Issues with Liability Auto Insurance

Most states require that motorists carry auto insurance. Some states require that motorists carry a minimum coverage limit for liability insurance.

There may be legal requirements to carry uninsured motorist coverage and underinsured motorist coverage in some states. Uninsured motorist coverage is insurance that protects the policyholder if the other person is at fault and does not carry insurance.

Underinsured motorist car insurance coverage protects the policyholder if the driver is at fault and whose liability insurance is below the required coverage limits.

A few states may impose insurance requirements on a driver even if they are only visiting the state. Arizona requires visitors who will be driving while in the state to have auto insurance with companies licensed to sell insurance in that state.

An insurance agent will inform the policyholder on what the required limits are for their state. A motorist can face both legal and financial repercussions as a result of not carrying insurance or carrying coverage below the limits required by your state.

Legal penalties vary from state to state. For example, in Alaska, which has some of the strictest auto insurance laws in the nation, failure to provide proof of insurance can result in suspension of your driver’s license.

In general, legal penalties can include fines, suspension of a person’s driver’s license, or jail time if there have been multiple offenses.

There are financial penalties for not having liability insurance. In addition to any fines the at-fault party may face, a person is held responsible for all of the medical and property damage expenses.

If the other party sues them, then the driver at fault is also responsible for their own legal expenses. In order to satisfy any financial obligation or legal judgment, the at-fault party may end up having to sell their assets and use their savings in order to meet their obligation.

In the end, it is much less expensive to pay a monthly or bi-annual insurance premium than to be legally obligated to pay for injuries and property damage that occurred as a result of negligent actions.

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References:

  1. https://www.thebalance.com/understanding-minimum-car-insurance-requirements-2645473
  2. https://wallethub.com/edu/bodily-injury-liability/8607/
  3. https://wallethub.com/edu/property-damage-liability/8775/
  4. https://www.thebalance.com/how-do-i-get-my-suspended-license-reinstated-4010484
  5. https://law.freeadvice.com/general_practice/traffic_law/driving-no-insurance.htm