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Car Insurance Liability

Liability is one of the central – and standard – aspects of any insurance policy. Should you be found at fault for an accident, you may be legally responsible to pay the bodily injury or property damage to others. That means covering any repair costs, medical bills, lost wages, or funeral costs. These costs can add up, putting you in severe financial debt or put your assets, such as your home or savings, at risk, if you didn’t have car insurance liability.

“It is the most important part of any auto insurance policy,” said Houston-based State Farm agent Theo Franklin.

Bodily Damage and Property Damage Liability

Car insurance policies are made up of several different types of coverages. The two that relate to liability are bodily damage liability and property damage liability. Bodily damage liability covers any injuries that the policyholder and family members listed on the policy cause to someone else, including medical expenses, pain and suffering, and lost wages, as well as legal defense and court costs.

Property damage liability pays for any damage the policyholder, or someone who has permission to drive the car, causes to someone else’s property. “Property” includes vehicles, as well as lamp posts, telephone poles, fences, buildings, and other structures. It also may cover loss of use. These coverages come standard in car insurance policies and are required in all states except New Hampshire.

Determining How Much Liability Coverage You Need

The amount of liability coverage you need is based on two factors. The first is how much is legally required by the state in which you live, as each state sets its own minimums for how much liability coverage you are legally required to buy.

“It’s important to remember that each state has its own criteria, so ask an insurance agent [about] what is required for your state,” said Franklin.”

These minimums range from $10,000 to $50,000 per person and $20,000 to $100,000 per accident for bodily injury liability, and between $10,000 and $25,000 for property damage liability. If you were found to be at fault for an accident, your insurance company would cover any damages up to those amounts, and you would be responsible for the remaining balance.

Because bodily and property damages from accidents can well exceed those minimums, especially since motorists in serious accidents may be sued for large amounts of money, insurance experts recommend that drivers buy more than their state’s minimum. The Insurance Information Institute recommends that you carry at least $100,000 of bodily injury protection per person and $300,000 per accident, while Consumer Reports recommends buying $100,000 of property damage liability.

The second factor that helps determine how much liability coverage you need is your own financial situation. If your liability doesn’t cover all of the injured party’s medical bills or pain and suffering, you’ll be responsible for the rest, and that could put your assets, such as your home or savings, at risk. Someone who earns more than $50,000 or is a homeowner or property owner would need to have higher limits than someone who makes less or doesn’t own their own home or property.

“The bottom line is, if you have finances and assets worth protecting, you should definitely get higher than minimum limits for liability coverage,” said Franklin.

Other Insurance Terms To Know

Now that you know what car insurance liability is, here’s a quick rundown of some other terms you may encounter when discussing liability:

  • Legal liability.

    Being held legally responsible for a situation. Drivers deemed to be at fault in an accident can be liable to pay for the repairs and medical bills of others injured.

  • Split liability.

    When both drivers are considered to be at fault for the accident.

  • Liability investigation.

    The act of gathering information to determine the cause of an accident.

  • Liability examiner.

    The person who handles the investigation of an accident, such as collision payments, property damage payments, and bodily injury settlements.

  • Auto liability demand letter.

    A letter to your insurance adjuster to settle your car insurance claim which includes the details of the accident and the extent of your damages.