Most states require you to buy liability insurance and mandate minimum coverage amounts, but following your state's auto liability insurance laws could still cost you a stack of cash if you get in a wreck.
Here we explain what liability insurance coverage is, how it works and how to be sure you have enough to protect your assets.
Liability coverage at a glance
|Bodily-injury liability covers, up to your limits:
Pays for damages you cause to others -- covers their medical bills and lost wages.
|Property-damage liability covers, up to your limits:
Pays to repair or replace property that you destroy -- includes other cars.
If you are sued after an accident, can also pay for "pain and suffering."
|Liability does not cover:
Damage to your own car from an accident.
Damage to your car from animal strikes, hail, fire, vandalism or flooding
Liability insurance has two parts:
- Bodily injury liability insurance, which provides coverage if you're found at fault in an accident that injures or kills someone else. It can pay for the other person's medical expenses, their loss of income, their funeral expenses, and your legal fees if you're sued.
- Property damage liability insurance, which provides coverage if you're found at fault in an accident that damages someone else's property. This includes paying for repair or replacement of the other person's vehicle and repair or replacement of homes, other buildings or stationary objects.
Every state has its own laws on the minimum amount of liability insurance coverage you're required to buy.
Often, liability insurance is expressed like this with three numbers. For example, for New York, you'd see liability limits written as 25/50/10:
- The first number is the bodily injury liability maximum coverage for one individual who's injured in an auto accident. So for New York it would be $25,000.
- The second number is the maximum amount of bodily injury liability coverage per accident. In this example, that means $50,000.
- The third number represents the maximum amount of property damage liability, and it's per accident. In this case, $10,000.
Minimum state liability insurance requirements vary significantly by state. Alaska and Maine have the toughest requirements, and if you live in one of those states you'll need to have minimum bodily injury liability coverage of $50,000 for each person injured in an accident, up to a maximum of $100,000 per accident, as well as $25,000 in property damage liability coverage.
On the other extreme, states such as Nevada require only $15,000 in liability coverage per person and $30,000 per accident. Pennsylvania requires that you have just $5,000 in property damage liability coverage.
Florida requires that you carry a minimum of $10,000 in property damage liability insurance, but does not require bodily injury liability insurance. However, you must have at least $10,000 in personal injury protection (PIP), which covers you, regardless of who is at fault in an accident. It also provides coverage to members of your household, as well as passengers who don't own a vehicle and lack PIP coverage.
Personal injury protection explained
In addition to Florida, 11 other states have no-fault automobile liability insurance laws. No-fault car insurance was created to prevent drivers from suing others in the event of an accident. If your state has a no-fault auto insurance law, your policy must pay medical bills for you and your passengers regardless of who caused the accident.
Optional coverage beyond liability
|Medical payments (MedPay) covers your injuries up to your policy limits.|
|Collision pays for damages to your vehicle and property.|
|Uninsured/underinsured motorist bodily injury pays for injuries if you are involved in a wreck and the other driver is uninsured or underinsured.|
|Comprehensive pays for damage to your car due to hail, fire, flooding and vandalism; also covers theft.|
|Rental reimbursement pays for the cost of renting a car while your vehicle is being repaired.|
No-fault states require drivers to purchase minimum levels of personal injury protection (PIP) coverage. The amount of coverage required varies by state, as does the nature of the coverage. Depending on the state, PIP coverage may reimburse the policyholder for medical and other accident-related expenses as well as lost wages.
Why you should consider higher liability coverage limits
While the vast majority of states require you to purchase liability insurance if you want to drive legally, the minimum amount of auto insurance required by your state could fall far short of what you need to protect yourself and your assets if you cause an accident.
Opting for minimum coverage "doesn't provide enough protection if you get into an accident," says Susan Irace, claims manager for Mercury Insurance. "The damages could far exceed your coverage, which means you could be responsible for the rest. You could lose your savings, your house and all of your assets if the accident was serious enough."
Irace points out that your auto insurer will cover your costs up to the limits of your policy. If your costs exceed that limit, you'll be responsible for paying the difference out of your own pocket.
Bodily injury coverage of $15,000 could quickly be used up if you get into a moderate accident, Irace says. When it comes to coverage for property damage, "$5,000 won't even cover a bumper replacement if you happen to run into a fancy luxury car."
If you wind up in court and you're ordered to pay liability damages that exceed your insurance coverage, "the court doesn't care about your ability to pay," says Lynne McChristian, a spokeswoman for the Insurance Information Institute. "That means all the individual's savings and property might have to be liquidated to pay for the damages. Courts even have the power to garnish your wages."
The institute recommends you carry $100,000 of bodily injury protection per person and $300,000 per accident. Typically, buying additional liability coverage exceeding state minimums costs very little – generally less than $100 a year.