Liability car insurance is designed to protect a driver in the event of their vehicle causing someone bodily harm or damaging their property.
It can save them from lawsuits and is legally required in all 50 states as well as the District of Columbia. It only covers the other person’s expenses in an accident; it will not cover their own medical expenses or damage to their property (including their vehicle.)
Due to this, it is known as “third-party” insurance. Liability car insurance is also sometimes called basic car insurance. In order for an insurance agency to offer a driver additional coverage, they must first meet the minimum requirements for liability.
Some states allow an exemption to the requirement if the driver can prove they have the money to cover the expenses of an accident. This usually involves placing money in a savings account or posting a bond. Most drivers cannot afford this and instead are insured. If that is the case, they must follow the minimums set by the state.
Bodily Injury Liability Insurance
This type of insurance covers both the drivers and occupants of the other vehicle as well as pedestrians and bystanders that were affected by the collision. It is designed to help pay for their short and long term costs.
Here are the things this coverage will cover:
- Medical expenses: This is the biggest component of bodily injury liability. It is what will cover the emergency fees and hospital visits that result from the accident. Depending on the circumstances and the coverage, it may also cover follow up visits. Equipment, such as crutches or a wheelchair, also could be paid for.
- Pain and Suffering: As a result of the accident, the other party may claim to linger emotional distress and seek payment for it. They may also complain of pain that hasn’t subsided. This is the most difficult cost to put a number on.
- Funeral Costs: If the worst happens and there are fatalities, the bodily injury will help cover any resulting funeral costs.
- Lost Income: If the other party or parties involved suffer an injury that prevents them from working, this coverage will help them financially through this period. This is often the case if the person has a physically demanding job or if extensive physical therapy is required to recover from the injury. Different states have different limits on how much this figure can be.
- Legal Fees: One of the biggest reasons to have good bodily injury coverage is in case the situation is resolved in court. The other party in an accident has the right to sue. Legal fees and other court costs can be at least partially covered by bodily liability. This is the only area that covers the driver instead of the other party, making it “first-party” coverage instead of “third-party” coverage.
There are two types of liability insurance. They have split limit policies and combined single limit policies.
Split Limit Policies?
This involves having two separate limits on money the policy will pay, one per person and one per accident. Limit per person is how much your insurance provider will pay for injuries for a single person involved. They will not exceed this number.
Limit per accident is the cap placed on how much they will cover for all people involved in an accident.
If the policy is designed to cover 25,000/75,000 (often abbreviated to 25/75,) the insured is covered for up to $25,000 per person and $75,000 per accident. If the accident injures one person and the costs equal $20,000, the policy will pay in full. If instead, the one person’s injuries total $40,000, the insured is responsible for covering the additional $15,000.
Those same coverage levels in an accident with multiple people injured will play out slightly differently. If the person one’s total is $25,000 and person two’s total is $25,000, insurance pays for it all.
However, if there are four injured parties each with $25,000 in injuries, the insured will be responsible for $25,000. Despite each individual not exceeding the per person number, the total exceeds the per accident limit.
Combined Single Limit Policies
This type of policy provides one number that is the cap for all bodily injuries and property damage in the event of an accident. Depending on the accident, this can work better or worse for the insured.
In this example, the insured causes an accident that causes $40,000 in injuries to the driver, $20,000 to the passenger, and $12,000 to the car. If the insured has a combined single limit policy that covers up to $100,000, the insurance will cover all of the costs.
If the insured has a 25/75/25 split limit policy, with the third number representing property damage, the insured will end up paying $15,000. This is because the driver’s injuries exceeded the per person limit. In this instance, having a combined single limit policy would be beneficial to the driver. Young drivers may find it difficult but they need these policies.
Combined single limit policies are much less common. Due to the flexibility of this insurance, it usually costs more to have. Some car insurance companies simply do not offer it.
Every state has requirements for minimum levels of bodily injury insurance. The per person minimum ranges from $15,000 to $50,000. The per accident minimum ranges from $30,000 to $65,000. These numbers only represent the minimum required by law; higher amounts of insurance can be purchased.
The maximum coverage offered by many insurance companies is $300,000 per person and $500,000 per accident. If the driver has a lot of assets, they may need to purchase Personal Umbrella or Personal Excess Liability policies to make sure they are covered. Bodily damage claims tend to be much higher than property damage claims.
Property Damage Liability Insurance
When a driver is determined to be at least partially at fault for an accident, this type of insurance helps to cover the costs to replace and repair damaged property. This only covers property belonging to someone else, not the insured.
This coverage is designed for vehicles as well as other things that can be damaged in an accident, such as fences, light posts, houses, or street signs. If someone wants that type of coverage that will repair or replace their own vehicle they need collision or comprehensive coverage.
There is only one number involved with property damage liability and it represents the maximum amount paid per accident. The minimum amount of coverage required will vary from state to state, with numbers ranging between $5,000 and $25,000.
How Much Liability Insurance is Enough?
Ultimately, a person’s budget may determine how much coverage they can afford. Ideally, experts recommend carrying 100/300/50 (per person/per accident/property) or more if affordable.
Many people choose to go with minimums to save on insurance premiums. This can be costly in the long run, as most state’s minimums will be quickly eaten up in the event of a serious accident.
Even seemingly minor accidents can have high expenses, especially if a hospital visit happens. If someone owned their own home or had other valuable assets they would be at risk if the insurance did not cover all of the accident-related expenses.
The following is an example of what could happen to a driver with the minimum coverage in the state of Montana, 25/50/20:
A driver causes an accident that causes the driver $23,000 in injuries, the passenger $40,000 in injuries, and totals their car, a 2017 Subaru Legacy in good condition. Kelley Blue Book values that car at $21,970.
The insured will end up paying $15,000 in bodily injury and $1,970 in property damage, totaling $16,970 out of pocket for them. Paying for the recommended amount of insurance per month would have likely cost the driver less than this accident did.
Is Liability Insurance Enough?
The answer to that question is almost always no. Most people want coverage for themselves and their own property as well as the other people involved. It is also recommended to have uninsured and underinsured driver coverage. There are only two situations where liability only should ever be considered:
- An Old Vehicle: If the car is so old that replacing it would not be worthwhile, liability may be enough. The driver is then running the risk of paying for their own medical expenses in the event of an accident.
- A Teen Driver: It can be cost-prohibitive to ensure a teen in an expensive vehicle. Many people choose to instead have the teen drive a low-value vehicle and may carry liability only on it. It is important to remember that teenagers tend to be accident prone so not having high liability insurance can be financially devastating.
It is important to note that liability only is not legally an option for people who have a loan on their car. People who choose to lease their cars are also required to carry full coverage for their vehicle. This is another reason that it only ever makes sense on low-value vehicles that are owned outright.
Liability does not offer a lot of the perks that other types of coverage do, such as road-side assistance, towing, and rental car coverage. The only advantage of this method of ensuring is that the premiums are low, sometimes half the cost of a full coverage policy.
Consequences of Driving Without Liability Insurance
When times are tough, people look for ways to save money. Cutting out insurance may seem like a good way to save some money. It isn’t.
Not only does an uninsured driver risk putting another driver in financial distress, but they also face legal consequences. The punishment for driving without insurance varies from state to state but can include:
- Driver’s license suspension
- Vehicle registration suspension
- An additional traffic ticket for lack of insurance
- Having the vehicle towed
Financially, the driver’s premiums are almost guaranteed to increase if they are caught driving without insurance. The fees associated with reinstating a driver’s license, vehicle registration, and retrieving a car from towing can really add up.
Being without a license or vehicle, even temporarily, can also result in loss of income if the driver cannot find a different way to get their job.
The consequences of driving without proper insurance are too great to risk. If a driver does cause an accident while driving without insurance, they will likely be sued and then run the risk of losing any valuable personal property.
Even if the driver is never involved in an accident, something as simple as being pulled over for a broken tail light can turn into a very expensive even if they lack proper proof of insurance.
Driving without proof of insurance can result in a ticket, even if the driver is insured. Depending on where the ticket was issued, it is possible to have it forgiven if the driver can prove they did indeed have insurance at the time of the citation.
To be safe, drivers should always carry proper proof of insurance. Some states allow this proof to be electronic and shown on a cell phone. It is important for the driver to be aware of the laws in any state they are driving in and having a hard copy is the best way to ensure they are legal.
Determining Fault and “No-Fault” Insurance
In order for an insurance company to pay out on a liability claim, the injured party needs to prove the accident was caused by the driver insured by them. They can only collect if they adequately prove where the fault lies in the accident.
This is done by submitting police reports, witness statements, photographs, and any other forms the insurance agency asks for. The process can be lengthy and complicated.
After navigating it, it is still possible for a claim to be denied. At this point, a lawsuit is usually filed, starting a new, even more complicated, process.
In order to make things less complicated, some states have developed “no-fault” insurance. In a no-fault state, each party involved in an accident files a claim with their own insurance agency to cover bodily and property damages. It eliminates the burden of proving who was at fault and every party gets help with their expenses, provided they have adequate insurance.
While it is easier, no-fault insurance does have drawbacks, the biggest being that pain and suffering and other general expenses are not reimbursable.
States like this style of insurance because it greatly reduces the need for lawsuits. Drivers like this style because insurance companies tend to pay these claims much more quickly and without as much hassle. Everyone involved saves money due to the lack of lengthy insurance claims and court costs.
The states that currently have some form of no-fault insurance are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah, and the District of Columbia.
The rules vary slightly from state to state. Some states allow drivers to choose between no-fault or traditional insurance when they sign up for it. Some states do allow for claims even if they use no-fault insurance, but what can be asked for varies.
Even the safest of drivers may someday find themselves at fault for an accident. That is why buying as much liability as one can afford is a good idea. The expenses resulting from an accident can be overwhelming. Shopping online in order to see many different insurance rates is a great way to get the best coverage at the best price.
Liability should be considered one piece of the insurance puzzle. Drivers should consider high levels of coverage for themselves in the event of an accident, whether they are at fault or the victim of an uninsured or under-insured individual.