When it comes to types of car insurance, auto liability insurance is essential. Some form of coverage is the law in almost every state. But what exactly are you insuring yourself against?
Liability insurance is crucial to making sure you are not exposed to a lawsuit if you cause an accident.
Rather than just opting for the minimum levels of insurance required in your state, here’s why you should look a little more closely at the amount you might need.
What does auto liability insurance cover?
Liability insurance covers the costs of damage you could do to other people and their property when driving.
So if you’re at fault in an accident and other people require medical attention or need to pay for vehicle repairs, your liability insurance would pay for this.
Auto liability insurance minimums
A minimum level of liability insurance is the law because you need to pay for the damage you may cause to others on the road. Liability insurance is the way to make sure you can do this.
Liability insurance covers three main areas that have different coverage limits.
• The maximum coverage per injury per person in an accident
• The total coverage for injuries in an accident
• The maximum coverage for property damage in an accident
If you see a liability coverage limit written as 25/50/25, this would mean:
• $25,000 per person injured
• $50,000 total for injuries in an accident
• $25,000 property damage coverage
How much does auto liability insurance cost?
According to data from the National Association of Insurance Commissioners, the average amount spent on auto liability insurance in 2015 was $538.73.
Keep in mind that this may be significantly different to what your premiums end up costing. This is due to the age of the data, and variations in your own circumstances that might raise or lower your car insurance costs.
There are also significant variations between states however. The most expensive states according to the data are:
- New Jersey ($869.57)
- Florida ($857.64)
- New York ($804.51)
- Delaware ($799.30)
- Michigan ($795.32)
The least expensive are:
- North Dakota ($298.18)
- Iowa ($299.18)
- South Dakota ($300.22)
- Wyoming ($321.04)
- Maine ($338.87)
What happens if I don’t have enough liability coverage?
If your maximum liability coverage is not high enough to cover all the costs of an accident, you could be exposed to further risk. Therefore you should not think of the state minimums as recommended levels.
For example, in California, the minimum property damage coverage per accident is $5,000. Now factor in how much repairing or replacing another driver’s car could cost. For example, in 2017 the average cost of a used car was estimated at $19,400.
You start to see how this minimum could get used up pretty quickly.
Imagine you had a $10,000 minimum property damage limit but caused an accident with $20,000 worth of damage. In this situation the other driver’s insurance company has the right to come after assets of yours to make up the difference.
This is why insurance agents will recommend higher levels of coverage on your liability insurance.
How much liability insurance coverage do I need?
There isn’t a one size fits all answer. Because the required minimums in some states can be fairly low, the answer will be more than this minimum amount.
A state’s legal requirement is the minimum, rather than the recommended level. The best solution is to work out how much coverage you can afford and basing your decision on that.
What isn’t covered by liability insurance?
Liability insurance only covers costs arising from damage you may cause to other people while driving. If you just have liability insurance, you have no protection for yourself.
There are several different types of car insurance to cover the other situations where you would need protection.
Your medical treatment
The bodily injury component of liability insurance only applies to the medical costs of other individuals if you are at fault in an accident.
The types of insurance intended to cover your medical costs in the event of an accident are Medical Payments and Personal Injury Payments Insurance (PIP). Either medical payments or PIP is mandatory in certain states.
Costs to your own vehicle
If your vehicle needs repairs following a collision, is stolen or is damaged in a situation that isn’t a collision, these costs would not be covered by liability insurance.
- Collision insurance covers damage to the vehicle when it is in a collision with an object or another car.
- Comprehensive insurance covers other things that could put your car out of action. Damage from storms, floods, earthquakes, a collision with an animal, or vandalism would be covered. Theft of your vehicle is also covered by comprehensive insurance.
Having collision insurance and comprehensive insurance together is known as full coverage.
Comprehensive or collision insurance is optional and the benefits make more sense depending on the value of your vehicle. (Read more about liability vs full coverage here)
Costs caused by an uninsured driver
If you are in an accident caused by a driver with no insurance this would be covered by uninsured motorist coverage. Uninsured motorist bodily injury (UMBI) coverage, for example, would cover the cost of medical bills if you are hit by an uninsured driver.
You could also find yourself in a situation where you’re hit by a driver who has some insurance, but not enough to cover your medical costs. This would be handled by underinsured motorist bodily injury coverage (also just known as uninsured motorist coverage).