Liability Car Insurance: What You Need to Know (Complete Guild)

Liability Car Insurance is a type of coverage that pays for the damages you cause to others in a car accident. It covers both bodily injury and property damage, as well as legal costs if you are sued. Liability car insurance is required by law in most states, but the minimum amount of coverage varies depending on where you live.

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Here are some key points to understand about liability car insurance:

What Does Liability Car Insurance Cover?

Liability car insurance has two main components:

Bodily injury liability (BI): This pays for the medical expenses, lost wages, pain and suffering, and funeral costs of the people you injure in a car accident that you are responsible for. It also covers your legal defense if you are sued by the injured parties.
Property damage liability (PD): This pays for the repair or replacement of the property you damage in a car accident that you are responsible for. This can include other vehicles, buildings, fences, signs, or personal belongings. It also covers your legal defense if you are sued by the property owners.

How Much Liability Car Insurance Do You Need?

The amount of liability car insurance you need depends on several factors, such as:

Your state’s minimum requirements: Each state has its own laws that specify the minimum amount of liability coverage you must have to drive legally. For example, in California, you must have at least $15,000 of BI coverage per person, $30,000 of BI coverage per accident, and $5,000 of PD coverage per accident. These are often written as 15/30/5. You can check your state’s minimum requirements here.
Your net worth: The minimum requirements may not be enough to protect your assets if you cause a serious accident that results in high medical bills or property damage. If the damages exceed your liability limits, you may have to pay the difference out of your own pocket or face a lawsuit. To avoid this risk, you should buy enough liability coverage to match your net worth, which is the value of your assets minus your debts. For example, if your net worth is $100,000, you may want to have at least $100,000 of BI and PD coverage each.
Your budget: The more liability coverage you buy, the more expensive your car insurance premium will be. However, increasing your liability limits may not cost as much as you think. According to NerdWallet, raising your liability limits from 50/100/50 to 250/500/250 only increased the average annual premium by 13%. You can compare quotes from different insurers to find the best deal for your desired level of coverage.

How Does Liability Car Insurance Work?

Liability car insurance works by paying for the damages you cause to others in a car accident that you are at fault for. Here are some steps to follow if you are involved in such an accident:

Report the accident: You should call the police and your insurer as soon as possible after the accident. You should also exchange information with the other driver, such as name, contact details, license number, and insurance information.
File a claim: Your insurer will assign a claims adjuster to investigate the accident and determine who is liable and how much they owe. The adjuster will review the police report, interview witnesses, inspect the vehicles and property damage, and evaluate the medical records and bills of the injured parties.
Settle the claim: Your insurer will negotiate with the other driver’s insurer or their lawyer to reach a settlement that covers their damages up to your liability limits. If they agree on a settlement amount, your insurer will pay it on your behalf and close the claim. If they cannot agree on a settlement amount or if the other driver sues you for more than your liability limits, your insurer will provide you with a lawyer to defend you in court.

What Are Some Benefits of Liability Car Insurance?

Liability car insurance has several benefits for drivers who cause accidents, such as:

It protects your finances: Liability car insurance can save you from paying thousands or even millions of dollars out of your own pocket for the damages you cause to others in a car accident. It can also protect your assets from being seized or garnished by creditors or plaintiffs.
It protects your legal rights: Liability car insurance can cover your legal fees and representation if you are sued by the other driver or their insurer. Your insurer will handle the lawsuit on your behalf and try to reach a favorable outcome for you.
It gives you peace of mind: Liability car insurance can reduce your stress and anxiety after causing an accident. You don’t have to worry about how to pay for the other driver’s medical bills or property damage, or how to deal with a lawsuit. You can focus on your own recovery and getting back on the road.

What Are Some Limitations of Liability Car Insurance?

Liability car insurance also has some limitations that you should be aware of, such as:

It does not cover your own damages: Liability car insurance only pays for the damages you cause to others in a car accident. It does not cover your own medical bills or car repairs. To cover your own damages, you need other types of coverage, such as collision, comprehensive, personal injury protection, or medical payments.
It has coverage limits: Liability car insurance has maximum amounts that your insurer will pay for each accident. If the damages you cause exceed your liability limits, you are responsible for the difference. You may have to pay it out of your own pocket or face a lawsuit from the other driver or their insurer.
It may not be enough to cover all the damages: Liability car insurance may not be enough to cover all the damages you cause in a car accident, especially if you cause a serious injury or death, or if you damage an expensive vehicle or property. The minimum requirements in your state may not be enough to protect you from financial ruin. You may want to buy more liability coverage than the minimum to avoid this risk.

How to Choose the Right Liability Car Insurance for You

Choosing the right amount of liability car insurance can be tricky. You want to have enough coverage to protect yourself from a lawsuit, but you don’t want to pay more than you need. Here are some steps to help you choose the right liability car insurance for you:

Know your state’s minimum requirements: Each state has its own laws that specify the minimum amount of liability coverage you must have to drive legally. You can check your state’s minimum requirements here. However, keep in mind that these are only the minimums and may not be enough to cover all the damages you cause in a serious accident.
Add up your net worth: Your net worth is the value of your assets minus your debts. It represents how much you have to lose in a lawsuit if you cause an accident that exceeds your liability limits. To protect your net worth, you should buy enough liability coverage to match or exceed it. For example, if your net worth is $100,000, you may want to have at least $100,000 of BI and PD coverage each.
Consider the cost of vehicles and medical bills in your area: The amount of liability coverage you need also depends on how expensive the vehicles and medical bills are in your area. If you live in an area where most cars are high-end or where healthcare costs are high, you may want to have higher liability limits to cover the potential damages you cause. You can use online tools like Kelley Blue Book or Healthcare Bluebook to get an idea of the average costs of vehicles and medical services in your area.
Compare quotes from different insurers: The cost of liability car insurance varies depending on the insurer, your driving record, your location, and other factors. To find the best deal for your desired level of coverage, you should compare quotes from different insurers. You can use online platforms like NerdWallet or Forbes Advisor to compare rates from multiple insurers in minutes.

How to Save Money on Liability Car Insurance

Liability car insurance is usually the most expensive part of your car insurance policy, but it doesn’t have to break the bank. There are several ways you can save money on liability car insurance, such as:

Shop around for the best deal: The easiest way to save money on car insurance is to compare quotes from different insurers and find the best value and coverage for your needs. You can use online platforms like MoneySuperMarket or NerdWallet to compare rates from multiple insurers in minutes. Comparing car insurance quotes can save you up to £319 or $441 a year, according to MoneySuperMarket.
Raise your deductible: Your deductible is the amount you have to pay out of your own pocket before your insurer pays for the damages you cause in an accident. Raising your deductible can lower your premium, as you are taking on more risk and responsibility. However, you should make sure you can afford to pay the higher deductible in case of an accident. You should also check if your lender or leasing company has any restrictions on how high your deductible can be.
Reduce optional coverage for older vehicles: If you have an older vehicle that is not worth much, you may want to drop some optional coverage that may not be worth paying for, such as collision or comprehensive coverage. These coverages pay for the damages to your own vehicle in an accident or other events, but they may cost more than the value of your vehicle minus the deductible. You can use online tools like Kelley Blue Book to check the value of your vehicle and decide if you need these coverages or not.
Use public transit or carpool when you can: Some insurers offer discounts if you drive less than a certain number of miles per year, as this reduces your exposure to accidents and claims. You can lower your mileage by using public transit, carpooling, biking, or walking when possible. You may also qualify for a pay-per-mile insurance program, which charges you based on how many miles you drive. This can save you money if you drive very little, but it may not be available in every state or from every insurer.
Bundle your insurance policies: Another way to save money on car insurance is to buy multiple insurance policies from the same insurer, such as home and auto insurance or renters and auto insurance. This is called bundling, and it can give you discounts on your premiums. According to CNET Money, bundling can save you up to 25% on your car insurance.

How to File a Liability Car Insurance Claim

If you cause an accident that damages someone else’s property or injures someone else, you need to file a liability car insurance claim with your insurer. This will allow your insurer to pay for the damages you are responsible for, up to your liability limits, and protect you from a lawsuit. Here are some steps to follow when filing a liability car insurance claim:

Gather relevant evidence and documentation: After the accident, you should exchange information with the other driver, such as name, contact details, license number, and insurance information. You should also take photos of the scene, the vehicles, and the property damage. You should get a copy of the police report, if available, and any medical bills or receipts related to the accident. These documents will help you prove your liability and the extent of the damages.
Prepare to file your claim: Before you contact your insurer, you should review your policy and understand your coverage and limits. You should also have your policy number, vehicle information, and driver’s license handy. You should be ready to explain what happened, where and when the accident occurred, who was involved, and what damages were caused.
Call your insurance company: You should file your claim as soon as possible after the accident. You can do this by phone, online, or with a mobile app, depending on your insurer’s options. You should provide your insurer with all the information and documents they request and cooperate with their investigation. You should also keep a record of all your communications with your insurer, such as dates, times, names, and reference numbers.
Work with a claims adjuster: Your insurer will assign a claims adjuster to handle your claim. The adjuster will review the evidence and determine who is liable and how much they owe. The adjuster may contact you or the other driver for more information or clarification. The adjuster may also inspect the vehicles and property damage, interview witnesses, and evaluate the medical records and bills of the injured parties.
Receive a claim settlement and payout: Your insurer will negotiate with the other driver’s insurer or their lawyer to reach a settlement that covers their damages up to your liability limits. If they agree on a settlement amount, your insurer will pay it on your behalf and close the claim. If they cannot agree on a settlement amount or if the other driver sues you for more than your liability limits, your insurer will provide you with a lawyer to defend you in court.

In conclusion, Liability car insurance is a vital part of your car insurance policy. It pays for the damages you cause to others in a car accident that you are responsible for. It covers both bodily injury and property damage, as well as legal costs if you are sued. Liability car insurance is required by law in most states, but the minimum amount of coverage varies depending on where you live. You should buy enough liability coverage to match your net worth and protect your finances from a lawsuit. You should also compare quotes from different insurers to find the best deal for your desired level of coverage.

Frequently Asked Questions (F&Qs)

What does liability insurance involve?

Liability insurance policies cover any legal costs and payouts an insured party is responsible for if they are found legally liable. Intentional damage and contractual liabilities are generally not covered in liability insurance policies.

Liability insurance is often required for automotive insurance policies, product manufacturers, and anyone who practices medicine or law. Personal liability, workers’ compensation, and commercial liability are types of liability insurance.

What is the difference between liability and comprehensive insurance?

Liability insurance covers damage to other people and their property if you cause an accident. It is required by law. While, comprehensive insurance, on the other hand, covers damage to your car from non-collision events like theft and vandalism. It is optional and more expensive.

Is insurance under liabilities?

Insurance is not a liability itself but rather a means to protect against liabilities. Liability insurance is an insurance product that provides protection against claims resulting from injuries and damage to other people or property. Liability insurance policies cover any legal costs and payouts an insured party is responsible for if they are found legally liable.

Liability Car Insurance: What You Need to Know