Liability Car Insurance Explained

Jason Lee
Jason Lee

Liability car insurance is a form of insurance that covers the costs of injuries and damages to other drivers or property in an accident that you cause. Having liability car insurance is necessary for two main reasons — it’s the law in most areas, and it protects you in case you cause an accident. 

The first reason for getting coverage is that it’s required to be a properly licensed driver. Without having insurance, you could be subject to fines, fees, and the suspension of your license and registration. Specific penalties will vary by state.

The second and arguably more important reason to have liability car insurance is to protect yourself in case you cause an accident that results in injury or damage. Drivers who cause accidents and don’t have proper coverage are responsible for paying for the other driver’s expenses out of pocket. Liability car insurance can protect you from footing part of a massive bill from your own pocket. According to a 2015 report by the National Highway Traffic Safety Administration (NHTSA), the economic costs of all accidents in the U.S. in 2010 was $242 billion. While more updated stats are not yet available from the NHTSA, you can begin to see how expensive car accidents can be. 

Elements of liability insurance

  • Bodily injury liability per person – The part of your liability car insurance refers to the amount of coverage your insurer will pay for each individual person hurt in an accident you cause. This can cover things like hospital bills, x-rays, ambulance rides, or physical therapy.
  • Bodily injury liability per accident – This element of your coverage covers the same elements mentioned in the previous bullet. However, this limit sets an overall total amount that the insurer will cover for the accident. The sum of the costs covered for bodily injury expenses per person can only be as high as this total limit. Anything above that will need to be covered out of pocket.
  • Property damage liability per accident – This piece of your liability car insurance coverage sets the maximum limit that the insurer will pay for property damage in an accident you caused. Common things covered in this include other driver’s cars, fences, buildings, and street signs. Damage to your property is not covered.

What isn’t covered in liability insurance?

  • Your damaged car – Damage to your own car in an accident is not covered by liability insurance.
  • Your medical bills – Any medical costs, bills, or expenses you incur as a result of a wreck are not going to be covered.
  • Outside damage factors – If your car gets damaged by things like hail, flooding, or rust — it’s not going to be covered under this type of policy.
  • Theft of your vehicle – Auto theft of your vehicle is not one of the factors that is covered by liability car insurance.
  • Your rental car costs – If you have an accident and need to get a rental car while your car is being fixed, this is not going to be covered.
  • Diminished value – Cars that have been in accidents lose value, even when they are repaired. If your car suffers diminished value, that would not be covered under liability insurance.

How much liability car insurance should you get?

The first thing you should look at to determine how much liability insurance you should get is what is required by law in your state. From there, you need to look at what you can afford, what is available, and determine what level of coverage best fits your needs.

Some questions to look at that may help include:

  • How often do I drive? The more you drive, the more opportunities you have to be in an accident. If you drive rarely or don’t own a car, you may look into less covered or non-owner car insurance.
  • How experienced of a driver am I? If you’re new to driving, you may be more likely to cause an accident due to inexperience. More coverage may be something to consider.
  • What other assets do I have? You’ll want to look at what other assets you have that you could use if you caused an accident and needed to come out of pocket. Things like cash reserves, savings and cars you own should be taken into account.
  • Where do I live? Certain areas with more dangerous roads might be somewhere that more coverage is a smart idea.

Ultimately, the decision of how much insurance to get is up to you. The more insurance that you take, the more expensive your premium will be. While this might not feel great when you cut your payment every month, you can be a little more confident that you’re covered if you ever cause an accident.

What’s the difference between full coverage and liability?

Liability car insurance coverage is the most basic form of car insurance that you can get. In many states, it’s the type of coverage that is required. When you start to add to this coverage, you move into what is known as full coverage.

Full coverage refers to policies that generally combine liability coverage, collision coverage, and comprehensive coverage. Collision coverage covers your car costs in case it gets damaged or into an accident. Where liability covers the other driver’s cars, collision covers you. Comprehensive coverage takes care of your car if there is damage from any other non-collision factors like weather, theft, fire, or vandalism.It’s imperative that when you choose your policy, you find the best insurance coverage that most fits your needs. Adding the elements that bring your policy to full coverage can be great, but it will add to your monthly insurance costs. You should weigh factors like what you can afford in premiums, the value of your car, and what other assets you have to help out in case something happens to your vehicle.

About the Authors

Jason Lee is a seasoned writer with a passion for writing about insurance, banking, and personal finance. As a Las Vegas local and area business owner for a decade, he knows the ins and outs of the city better than anyone.