What is auto liability insurance, and why do I need it?

Car accidents can hit you pretty hard in the wallet, especially if you’re the person who caused the collision.

If you’re at fault in an auto accident, auto liability insurance can protect your finances by covering costs — up to your coverage limit — for damages or injuries you caused someone else. In most states, this coverage is required by law.

While each policy can vary, let’s take a look at the different types of liability insurance and what they typically cover, as well as how much liability insurance costs.

• What does liability insurance cover?
• Does liability insurance cover my car if someone hits me?
• Is liability insurance required by law?
• What does liability insurance cost?

What does liability insurance cover?

Liability insurance provides two main types of coverage: property damage and bodily injury. In some states, a third type of liability coverage called uninsured/underinsured motorist coverage is also required.

Property damage liability insurance

If you cause an accident that damages someone else’s property, property damage liability insurance can help pay the bill. It may cover some or all of the costs (depending on your coverage limit) if you damage another vehicle or any other property, such as fences and trees.

Bodily injury liability insurance

What if you’re at fault in a collision, and someone else is injured? Many states have tort insurance laws. Under these laws, if you’re at fault in an accident, you or your insurance company is responsible for covering costs associated with the other person’s injuries.

In a state with tort insurance laws, bodily injury liability insurance can help cover the medical costs of the person who’s been hurt. It may also cover other claims for damages that person might file, such as lost wages or pain and suffering.

On many auto insurance quotes, the amount of liability insurance coverage that’s provided is represented by a series of three numbers. The first two numbers tell you how much bodily injury coverage is provided. The third number tells you how much property damage coverage comes with the policy.

Image: aaliability

For example, let’s say your policy’s coverage limits are 20/40/10. The first number indicates that the policy provides bodily injury coverage of up to $20,000 for each injured person. The second number indicates that there is maximum bodily injury coverage of $40,000 per accident. Finally, the third number lets you know that the policy provides up to $10,000 of coverage for property damage per accident.

Personal injury protection

In states with no-fault insurance laws, things work a little differently.

In a state with no-fault insurance laws, each driver’s insurer pays that driver’s medical expenses — up to a certain limit — after an accident. This is different from a fault state, where the at-fault driver’s insurance company pays for medical expenses incurred by both drivers and any passengers, up to a limit.

Some of these states require that drivers also get personal injury protection coverage, or PIP. This coverage will pay you or any passenger in your car a minimum amount per person for injuries, regardless of who caused the accident.

Uninsured and underinsured motorist coverage

In addition to the types of liability insurance discussed above, some states require uninsured motorist coverage and/or underinsured motorist coverage.

Uninsured motorist coverage may help pay for your medical or car repair expenses if you’re the victim of a hit-and-run accident or one caused by a driver who doesn’t have liability insurance.

What if you’re in an accident that was caused by a driver whose insurance liability limits are lower than the damage you’ve sustained? In this case, underinsured motorist coverage might pay the difference between the driver’s liability limits and the cost of your damages or injuries, up to your policy limits.

Does liability insurance cover my car if someone hits me?

Your own property damage liability insurance won’t cover the cost of repairing your car if you’re in an accident. Similarly, your bodily injury liability insurance doesn’t cover your own medical bills if you’re injured in a collision. Instead, they help cover injuries or damage that you cause another person in an accident.

If the accident isn’t your fault and you live in a state with tort insurance laws, the other driver’s liability insurance should cover any damage to your car and your medical expenses. In states with no-fault insurance laws, each driver’s insurance company helps cover their own medical expenses, regardless of who’s at fault.

If your car is damaged in an at-fault state, repairs may be covered one of two ways. If the other driver is at fault, their property damage liability insurance may help cover the costs. But if you’re at fault, your collision insurance may cover those repairs. If you don’t have collision coverage, you’ll need to pay out of pocket.

Is liability insurance required by law?

Liability insurance is required by law in 49 states and Washington, D.C. The only state that doesn’t require liability insurance is New Hampshire. Instead, New Hampshire drivers need to show they’re able to provide sufficient funds to cover accident expenses if they’re at fault in a collision.

Uninsured/underinsured motorist coverage and personal injury protection are required in some states and optional in others. Check with your state’s transportation agency or insurance commissioner to learn the minimum limits required in your state.

What does liability insurance cost?

The cost of auto liability insurance will depend on how much coverage you choose to purchase. The higher your coverage limit, the steeper your cost may be. In states where this type of insurance is mandatory, there are minimum coverage requirements. But you can exceed the minimum if you want more coverage, as long as you’re prepared to pay extra.

According to the National Association of Insurance Commissioners Auto Insurance Database Report released in December 2018, the average annual premium paid for liability insurance nationwide hovered around $566 in 2016. But rates vary from state to state. Some states, including Florida, New Jersey, Delaware and Michigan, paid a significantly higher average premium for liability insurance. Others, including Idaho, North Dakota, Alabama and Iowa, paid a much lower average. But keep in mind that other factors beyond the state you live in can affect your auto insurance rates.

What’s next?

When shopping for a car insurance policy, make sure you know your state’s minimum requirements for liability coverage. Take a look at your financial situation and decide whether it makes sense to purchase coverage that exceeds these minimums. Choosing a higher coverage limit will typically cost more upfront. But a higher liability limit could save you money if you cause an accident that leaves you on the hook for a fair amount of damage or significant injuries.

An insurance agent can help you determine the right amount of car insurance coverage for your needs. And remember that rates will vary depending on the insurance provider you choose. Shop around and compare insurance quotes to find the best auto insurance policy for you.