Liability Car Insurance 101: How It Works, How Much You Need, Definitions, and More
Written by The Clearcover Team | January 5th, 2022
Navigating car insurance can be tricky territory. Selecting the right car insurance coverage, and making sure you have enough car insurance coverage, is crucial to your financial health. That’s why Clearcover is on a mission to make car insurance easy to understand (and even easier to get).
Liability car insurance coverage is one of the basic building blocks of a standard car insurance policy—and having the right amount of coverage for you can help protect your financial future.
In this guide, you’ll learn:
What liability car insurance is (including bodily injury and property damage liability definitions)
What liability car insurance covers
How liability coverage works
How much liability coverage you need
What is liability car insurance?
Liability car insurance is a type of car insurance coverage that covers other people (and their property) if you cause an accident. It’s often referred to as liability or liability coverage.
Liability coverage is made up of two parts: bodily injury and property damage liability coverage.
Bodily injury liability coverage is designed to cover costs associated with an injury to another person.
Property damage liability coverage is designed to cover the cost of damage to someone else’s property.
Essentially, if you damage someone else’s property or cause an injury when you’re driving, your liability car insurance coverage is activated to help pay for covered damages.
Now let’s break down the differences between bodily injury and property damage.
Bodily injury liability coverage
Bodily injury liability covers other people’s injuries and medical bills if they’re hurt in a car accident where you’re found liable.
This coverage can also help reimburse any wages that were lost by the other person as a result of the accident you caused.
Bodily Injury limits are typically split between two types of coverage limits: per person and per accident. (We’ll talk more about coverage limits a little later!)
For example, if you have “50,000/100,000 bodily injury coverage,” the first number is the maximum amount the insurance company will pay per person (up to $50,000), and the second number is the maximum amount the insurance company will pay per accident (up to $100,000).
Bodily injury liability example:
Alex is a careful driver, but she hit an unexpected pothole on the highway, causing her to lose control and hit another car in the next lane. Unfortunately, the driver of the other car, Sam, has a broken arm resulting from the crash and Alex is officially found at fault for the incident.
Luckily, Alex has liability insurance—and because this is a covered incident, her policy kicks in. Alex’s bodily injury liability coverage can help pay for losses due to Sam’s injury, including any medical bills or wages Sam might have lost from missing work due to the injury. Without liability insurance, Alex would likely be held responsible for paying all costs from the crash.
Property damage liability coverage
Property damage liability covers other people’s vehicles and property when you’re at fault in an accident.
Most of the time, property damage offers a single coverage limit option per accident—unlike bodily injury coverage that provides a both per person and a per accident limit. It can help pay to repair or replace damaged vehicles or damaged property, like a fence or building, so you don’t have to pay out of pocket.
Property damage liability example:
Cole is driving to work in the winter and swerves to miss a large piece of debris in the road. But as he swerves, he hits a patch of ice, which causes him to slide into a fence on private property.
Cole’s property damage liability coverage on his car insurance policy could help pay to repair or replace the damaged fence (as long as it’s officially found to be a covered incident).
See how much you’d save on liability car insurance coverage with Clearcover.
Other uses for liability coverage
Your liability car insurance coverage can also help protect you financially if you cause a car accident and you’re sued. It can help cover your legal fees and any settlement payments that are required.
However, it’s important to note that you’ll be financially responsible for any legal fees or settlements you’re required to pay that extend beyond your coverage limits. (That’s why it’s often a good idea to buy more than the state minimum coverage level!)
What liability car insurance doesn't cover
While liability car insurance coverage can help when you cause property damage or injury in an accident where you’re at fault, it won’t cover repairs or replacement to your own vehicle.
To have protection for your own vehicle, you’ll need to make sure you have comprehensive and collision coverage as part of your car insurance policy.
Liability coverage also won’t cover your medical expenses if you’re injured in an accident you cause. And liability coverage doesn’t pay you for any lost income or alternative transportation you might need after an accident—although, depending on coverage availability in your situation, you might choose to add coverages to your car insurance policy that include these protections.
Another important note on liability car insurance coverage: You’re financially responsible for the cost of any damages or injuries that extend beyond your liability coverage. But what does that mean exactly?
When you purchase a car insurance policy, you select your coverage limits. These limits not only inform what you’ll pay for your policy (called your premium), but they also inform the maximum amount your insurance company will pay if you have to use your coverage.
This means that if you are in an accident where you’re found at fault, you’ll need to pay out of pocket—from your own personal savings or assets—for anything that is outside of the coverage limits you selected when you bought your policy.
Do I need liability car insurance coverage?
Yes, all states require drivers to carry bodily injury and property damage liability coverages—except for New Hampshire and Virginia (1). And while liability coverage isn’t mandatory by law in New Hampshire, it’s still encouraged by the state’s Department of Motor Vehicles.
Many drivers wonder if they need liability car insurance coverage, and the truth is that you don’t want to get caught without it—or without enough coverage. (More on that below.)
How much liability coverage do I need?
You’ll need to have at least your state’s required minimum for bodily injury and property damage liability coverage to legally drive. However, it’s smart to carry more than your state’s minimum.
Why? As a general rule, you want to have enough liability insurance coverage to protect the total of your net worth. That way, if you do get sued, your personal assets can be fully protected.
While you might save a few dollars per year on your insurance premiums by sticking with your state’s minimum, you’ll be taking on more financial risk.
Learn how you can get the fastest claims experience in car insurance when you switch to Clearcover.
How liability insurance coverage works
Liability car insurance coverage works to protect your assets from loss when you are found liable, or responsible, for property or bodily damages you cause in a car accident.
To get the full picture of how liability car insurance coverage works on your behalf, let’s take a look at a couple of detailed examples below.
Liability insurance coverage based on the state minimum
Let’s say you live in Texas and need liability car insurance.
By law, Texas drivers have to carry a minimum of $30,000 of coverage for injuries per person, with a total of at least $60,000 per accident for bodily injury liability. Drivers are also legally required to carry a minimum of $25,000 of coverage for property damage (2).
You decide to carry the minimum coverage for Texas drivers. You’re in an accident on the highway that includes injuries to one person and damage to two cars. You’re found at fault, and no one involved decides to sue.
One driver injured in the accident has multiple injuries totaling $29,300 in medical bills, while the other driver has no injuries.
One luxury SUV is completely totaled, costing $38,000 to replace, and another vehicle sustains $2,500 in repairs.
Based on the minimum coverages you chose for your policy, this is how you and your insurance company would be responsible:
Your bodily injury liability insurance would cover up to $30,000 in medical bills for the injured person, so their medical bills would be completely covered by your car insurance policy.
Your property damage liability insurance would cover $25,000 of damages, leaving you responsible for the remaining $15,500 in costs to repair or replace the damaged vehicles.
This means you’re going to have to pay $15,500 extra out of pocket—that’s a big bill. Now let’s see what would happen if you’d chosen to purchase a bit more liability coverage.
Liability insurance coverage beyond the state minimum
In this example, let’s say you’re a new Utah driver looking for car insurance.
In Utah, drivers are required by law to have the following liability car insurance coverage: $25,000 per person for bodily injury, $65,000 per accident for bodily injury, and $15,000 per accident for property liability coverage (3).
You shop around for car insurance, but you get a Clearcover quote that's so affordable, you decide to select coverages beyond Utah's required minimum—all while still sticking to your budget. You choose the following coverage: $100,000 per person for bodily injury, with up to $300,000 per accident, and $100,000 for property damage.
Unfortunately, you cause an accident that includes multiple injuries with one other driver and vehicle.
The other driver’s injuries require surgery and recovery time, totaling $80,000 in medical bills.
The other driver’s new vehicle was totaled, costing $45,000 to replace.
Based on the coverages you chose for your policy, your insurance company will pay for all covered losses. That means you won’t have to pay anything out of pocket.
If you would’ve chosen Utah’s required minimum coverage, you would be personally responsible for $30,000 of property damage and $55,000 in bodily injury costs. That’s $85,000 total! This is why it’s crucial to carefully consider additional coverages beyond the state-required minimum.
Here’s what you need to consider when shopping for liability coverage:
Now that you have a better idea of how liability car insurance coverage works, there are a few things to keep in mind when you’re shopping for coverage:
Your state’s required minimum coverage. You can check with your state’s department of insurance for details.
Your financial situation. You’ll need to consider the estimated total of your financial assets that you’d like to protect if a lawsuit was filed against you.
Your risk tolerance level. How much are you willing to pay out of pocket if you’re found at fault in an accident? What level of financial risk and responsibility are you comfortable taking on?
How easy it is to work with your insurance company. If your insurance isn’t easy to understand or if you’re not getting a great price, you can switch your insurer any time to one that better suits your needs.
The cost of additional car insurance coverages. You still may need comprehensive and collision coverage to fully protect your vehicle if it’s damaged, even if it’s not required by your state, car lease, or car loan. And depending on the state you live in and your financial situation, you’ll need to consider Personal Injury Protection coverage and/or first-party medical expenses coverage.
What is Personal Injury Protection coverage? This additional coverage, commonly called PIP, helps pay for your medical bills and other expenses, regardless of who caused the accident. Depending on the state you live in, there may be many PIP options available to you. To learn more about the different coverage options in your state, get a quote or contact one of our licensed representatives today.
What is Medical Expenses coverage? This add-on coverage can help pay specifically for your or your passenger’s medical bills, regardless of who caused the accident.
Where to get reliable liability car insurance coverage—without the hassle
Making decisions about your insurance coverages doesn’t have to be confusing. Now that you know what to consider when shopping for liability insurance, Clearcover can help you choose a car insurance policy that's right for you.
Through our innovative technology, we built affordable car insurance that’s smarter, faster, and puts you in control. And you can manage your coverage and payments seamlessly in our award-winning app. It really does make car insurance easy.
Take control of your coverage and see what you could save today.
