Liability car insurance: what it covers and how much it costs
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Car insurance is a financial safety net that can help protect drivers from significant monetary losses that can occur from vehicle ownership. If your negligence causes property damage or bodily injury to another party, liability insurance is a type of coverage within your auto policy that can pay to cover these losses. Understanding how liability coverage works and how much coverage you may need is crucial in creating a plan for your financial future. In this article, we’ll break down the basics of liability insurance and offer helpful tips for finding the right coverage for you.
What is liability insurance?
Liability car insurance is a critical component of your auto insurance policy, providing drivers with third-party coverage when they’re found liable for a car accident. Third-party coverage refers to claims paid out to others, and does not cover damage to the named insured vehicle or the medical payments for them or their passengers. This type of insurance is mandated in nearly every state and Washington, D.C., each setting its own minimum coverage requirements. The primary purpose of liability insurance is to safeguard drivers from significant out-of-pocket costs and possible financial ruin following an accident they caused.
How liability insurance works
Liability auto insurance functions by covering expenses linked to damages and injuries to others when you are deemed responsible for a car crash. It includes two main components: bodily injury liability and property damage liability.
- Bodily injury liability covers the medical bills, lost earnings and any legal costs if you’re sued because of the accident.Â
- Property damage liability covers costs to repair or replace another person’s property, such as a vehicle or a fence, damaged in the accident — it can even cover the other person’s personal property inside the vehicle.
Your liability coverage limits are the maximum amount your insurance company will pay per person or accident and are decided when you purchase your policy. If the accident expenses exceed these limits, you may need to pay the extra costs out of pocket. Factors such as state minimum requirements, coverage availability and cost can influence your policy limits.
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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
What does liability car insurance cover?
Auto liability insurance covers medical payments and property damage for others resulting from a car accident, which is why it is required in every state except New Hampshire. It helps prevent the at-fault driver or other affected people from being left with significant out-of-pocket expenses. It also helps the not-at-fault driver receive some level of compensation for suffering damage or injury that the accident was found to cause.
What does bodily injury liability cover?
Bodily injury liability insurance covers a wide array of medical expenses and other financial strains for those injured in an accident where you are at fault. This includes costs for the following:
- Emergency medical attention and ambulance
- Hospital charges
- Continued care expenses and necessary medical equipmentÂ
- Lost wages
- Pain and suffering
- Funeral expensesÂ
- Legal costsÂ
What does property damage liability insurance cover?
Property damage liability insurance covers the costs of repairing or replacing another person’s property damaged in an accident where you were at fault. This can include the following:
- Damage to the other party’s vehicle
- Rental car for the other driver
- Personal property inside the other party’s vehicle, such as groceries or sports equipment
- Property damage, such as buildings, fences, or treesÂ
What are the different situations where liability insurance coverage applies?
Example 1: Suppose a driver with liability insurance unintentionally causes a collision with another vehicle. In this scenario, the driver’s liability coverage is designed to cover the expenses related to the damage inflicted on the other driver’s vehicle. For instance, if the repair costs for the other vehicle amount to $5,000, the liability insurance would typically cover this amount, ensuring the other party’s vehicle damage is compensated. However, the driver at fault would need to bear the cost of repairs for their own vehicle, as liability insurance does not cover the policyholder’s vehicle damage in an at-fault accident. Optional collision coverage would cover the damage to the at-fault driver’s vehicle.
Example 2: In a different situation, imagine a driver hitting a pedestrian in the crosswalk or a cyclist in the road. For the pedestrian, the at-fault driver’s bodily injury coverage could pay for their medical expenses and lost wages. For the cyclist, the at-fault driver’s bodily injury would pay for medical-related expenses, and the property damage coverage would pay to fix or replace the bike.
What doesn’t liability insurance cover?
While liability insurance covers most costs related to your liability in an accident, first-party losses are not covered. First-party losses are those related to you and your passengers. For example, liability insurance usually will not cover:
- Damage caused by intentional acts
- Vehicles on your policy
- Medical payments for you or your passengers
To have costs covered for your vehicle or medical payments for you or your passengers, you’d need to rely on specific types of insurance, like comprehensive and collision insurance, for your vehicle repair costs. Typically, personal injury protection or medical payments coverage step in to help cover your medical bills and those of people in your vehicle.
Supplemental spousal liability (SSL) is the exception to the rule regarding liability coverage potentially applying to a passenger in the at-fault driver’s vehicle. New York car insurance laws recently required all insurers to include SSL coverage on all private passenger auto policies. SSL can pay for medical payments to the spouse if they are injured in a car accident where their partner was the at-fault driver. For example, this coverage could be helpful if the driver hits a patch of black ice and their spouse is severely injured. Once the PIP coverage on the policy is exhausted, the spouse could file a claim under SSL to pay for any covered medical overages. Policyholders can choose to waive the coverage in writing.
How much does liability insurance cost?
As of October 2024, the average cost of car insurance in the United States is $664 per year for minimum coverage, while full coverage costs an average of $2,388 per year. While liability insurance for your car makes up a portion of those premiums, your total car insurance costs will vary depending on your liability limits and other coverage types on your policy.
In addition to the state you live in, insurance companies use several individual factors to determine your insurance premiums, including:
- Your age (in most states)
- The type of car you drive and how many miles you log per year
- Your driving history
- Your ZIP code (in most states)
- Your credit-based insurance score (in most states)
- Coverage types and limits you choose to purchase
The total cost of car insurance coverage is an amalgamation of costs and factors; for example, the factors used to determine your premiums can also influence your individual coverage costs.
Plus, most companies give you various coverage limits and options. While higher limits will provide you with more coverage in the case of an at-fault accident, they’ll increase your monthly cost, as higher limits generally increase your premiums.
Learn more: Cheap liability-only car insurance
How to calculate the amount of liability insurance you need
Everyone has different insurance needs, but some general guidelines can help you determine how much coverage you may need.
Understand your state’s insurance laws
The minimum coverage needed to put your car on the road depends on your state and whether it is a no-fault or tort state (states that hold drivers responsible for damage and injuries caused to others). In a no-fault state, a driver may also be required to carry personal injury protection (PIP) insurance in addition to liability, property damage and bodily injury coverage.
Uninsured and underinsured motorist coverage may also be required, and MedPay is required in some states.
In most states, you will need to purchase at least your state’s minimum required liability limits to drive legally, and these required limits vary by state. Knowing your state’s minimum liability limits is useful when looking at coverage and policies. Still, insurance companies cannot offer you an insurance policy that falls below the legal limits.
When viewing required liability coverage types, you will see three numbers separated by a forward slash.
- The first number is the minimum bodily injury liability required per person in thousands
- The second number is the minimum bodily injury liability required per accident in thousands
- The third number is the minimum property damage liability required in thousands
So when you see 25/50/25 for Alabama, that means if you live in Alabama, you must carry at least $25,000 of bodily injury liability per person, $50,000 of bodily injury liability per accident and $25,000 of property damage liability.
These are just the minimum required coverage options, so most insurance professionals will recommend that you carry higher liability limits if you can afford to do so to provide greater financial protection.
Think about your financial situation
With car insurance rates increasing rapidly over the past few years, it has been challenging for many policyholders to keep up with their insurance payments. While forgoing auto insurance may seem like a quick fix to a tight budget, maintaining continuous coverage can save you from greater financial strain.
For instance, if you crash your car into someone else’s property and are sued for the damages, those expenses can be far steeper than your insurance premium. Not having auto insurance could also open you to state penalties and the risk of driver’s license and vehicle registration suspension.
Canceling your insurance or a lapse in coverage could also make you a high-risk customer and result in more expensive premiums later. Therefore, instead of forgoing insurance, look for an affordable insurer and available discounts to keep your costs low.
Consider your net worth
How much liability insurance you need will also depend on your net worth. If you have significant assets — such as a house, car or sizable savings account — you may want to purchase more liability insurance to cover your net worth and prevent assets from being taken in a judgment. You may even consider an umbrella insurance policy to provide extra liability coverage above typical standard car insurance policy limits.
Additionally, remember that just because you might not own a home or have a 401(k) plan right now, you may in the future. Understanding your earning potential should also be a factor in your decision-making.
It’s generally thought that you’ll want liability insurance that at least covers your net worth; however, consulting a licensed insurance professional is always a good way to determine how much coverage you need.
Best providers for liability insurance
Because everyone has different insurance needs, the best car insurance company will vary for every driver. The following companies, chosen by market share, have available discounts and third-party rankings worth considering:
| Car insurance company | Average annual premium for minimum coverage (to meet state liability requirements) |
|---|---|
| USAA | $565 |
| Geico | $555 |
| Progressive | $694 |
| Allstate | $919 |
| State Farm | $874 |
Drivers looking to save money on car insurance may want to check with their agent about discount opportunities and other ways to reduce their premiums. Carriers offer a wide range of discounts, and by getting quotes from multiple providers, you may find one with discounts geared toward your driving profile.
What is the difference between liability insurance and other types of car insurance coverage?
Liability insurance helps pay for the medical expenses and damage caused to the other driver, their passengers and their property. However, it does not pay for your vehicle damage or injuries if you are the at-fault driver. To financially protect yourself from a broader range of scenarios, you may want to consider purchasing the following types of optional insurance coverage as well:
- Comprehensive coverage: This pays for damage to your own vehicle caused by weather events, fire, theft, vandalism, or striking an animal.
- Collision coverage: This pays for damage to your vehicle caused by crashes and collisions with other vehicles or objects and applies to at-fault accidents.Â
- Uninsured/underinsured motorists coverage: These coverage options pay for injuries caused by a motorist with little to no insurance coverage and may help in the case of a hit-and-run. These insurance types are often required as part of state minimums, although they can be declined in writing in some states. Uninsured motorist coverage for property damage is available from some insurance companies in some states.
- Roadside assistance coverage: This helps pay for expenses when your vehicle breaks down or needs a tow. It can also help if you have a dead battery and need a jump or lose your keys.
- Car rental coverage: This covers the expenses for a rental vehicle while your car is in repair after a covered incident up to certain limits, typically for up to 30 days.
- Gap insurance: This pays for the outstanding loan amount on a financed vehicle if it is totaled or stolen before the loan or lease has been paid off.
There are numerous car insurance coverage options, and each insurance company offers its own suite of available coverage. Talking to a licensed insurance agent about your policy may be the best way to determine what coverage options you should purchase.
Frequently asked questions
Methodology
Bankrate utilizes Quadrant Information Services to analyze October 2024 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a single, 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2022 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.
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