What You Need to Know to Cover Your Bases
Getting into in an accident is never fun. And many times, it’s not something you can prevent. Even if you consider yourself to be an exceptional driver with a crystal-clear driving record, you can’t guarantee how other drivers on the road will behave.
This is precisely why liability insurance was created – to protect drivers in the case of an at-fault accident.
Just as the name suggests, liability car insurance will cover damage that you cause to another vehicle or personal property in an at-fault accident. Although bare minimum requirements will allow you to hit the open roads legally, increasing levels of liability protection can provide additional coverage and peace of mind in the unfortunate event of a crash. As coverage levels increase, insurance rates will rise accordingly.
“Bare-bones” auto liability insurance
is basic car insurance coverage that is required to drive legally in the majority of US states. In a liability insurance policy, you are required to have bodily injury coverage and property damage coverage, although specifics will vary by policy and by state.
What Does Liability Car Insurance Cover?
Liability car insurance is a minimum driving requirement in almost all states. It can be broken down into two separate categories:
Bodily Injury Liability
If you are at fault in an accident that results in injury to the other party, Bodily Injury Liability coverage will kick in. It will pay for the other party’s injury-related expenses to fulfill your legal obligations as the at-fault driver, including medical bills, rehabilitation costs, long-term care, funeral expenses, lost wages, pain and suffering, and related damages.
Property Damage Liability
If you are at fault in an accident that damages another party’s property, Property Damage Liability coverage will provide a payout to fulfill your legal obligation. Eligible property damage may include a house, a fence, or a parked car, for example. Property Damage Liability may also pay for legal defense if you are sued for an accident that results in property damage.
State minimum requirements dictate that Bodily Injury and Property Damage Liability go hand-in-hand
The two separate categories are listed under the liability section of a car insurance policy. But not so fast – basic bodily injury coverage may be further broken down into maximum payment amounts per person and per accident. In most policies, you will see liability coverage shown in three amounts for this reason:
50,000/100,000/50,000 or 50/100/50
Bodily Injury per Person/Bodily Injury per Accident/Property Damage
On the other hand, if you misjudge a turn late at night and run into a fence in a neighborhood, you will be held responsible for the damages.
Your property damage liability insurance will provide up to $50,000 in coverage to pay for a broken fence, as well as any other damage you may have cause to the yard, mailbox, sidewalk, etc.
To break it down for you
Your auto liability coverage may pay out
will also be available for related property damage in an at-fault accident.
As you can see, these liability coverage numbers may be depicted in their full value or shortened, i.e. 50/100/50.
Liability Car Insurance State Minimums
Once again, liability state minimum requirements will vary greatly. Here are several examples of state liability limits throughout the US
In a state with more stringent liability car insurance requirements, like Wisconsin at 25/50/10, your insurance will provide a greater payout in bodily injury and property damage liability if you cause an accident.
But let’s not forget about Michigan. . .
Within a liability car insurance policy, Michigan residents must also carry Property Protection Insurance, or PPI.
PPI is only available in the state of Michigan. It will provide coverage for up to $1 million in property damage in an at-fault accident, coupled with personal injury protection (PIP) insurance and residual bodily injury and property damage liability (BI/PD) insurance in a liability policy.
How much is enough?
In the event of an accident, collision insurance compensates you for damage to your own vehicle.
You’re going to want $50,000 for property damage. This covers the repairs of the other person’s property.
Personal Injury Protection
This compensates you for your own injury-related expenses, health care, work income lost and child car expenses. If you have good health insurance or disability insurance, you may not need this.
5 Important Facts About Liability Car Insurance
How well do you know your liability car insurance policy? Here are 5 must-read facts about basic liability auto insurance:
Liability car insurance won’t cover your own vehicle
Remember, the entire purpose of liability car insurance is to provide you with financial protection and fulfill your legal obligation to pay for the other party’s injuries and/or property damage in an accident. Extended coverage in comprehensive and collision insurance will provide extra protection for your own damages.
You probably need more than bare minimum liability insurance
While it may be tempting to pay as little as possible for liability car insurance, it will leave you vulnerable if you are injured or your vehicle is damaged in an accident. As mentioned above, full coverage insurance may cost more but will protect you physically and financially in an at-fault accident, with the exception of…
Older cars may not need extra liability coverage
It may be to your advantage to only pay for liability coverage on an older vehicle when the cost of full coverage insurance exceeds 10% of the blue book value of your car.
You can set your own liability coverage limits
Although it is required by law to meet basic state liability minimums in order to drive, you have the freedom to increase liability coverage limits at your discretion. Paying slightly more for liability insurance will provide extra financial protection in an accident.
You can add on uninsured/ underinsured motorist liability coverage
This liability insurance add-on will cover your bodily injury and property damage in an accident with an uninsured or underinsured driver.
Since liability car insurance is just a bare minimum requirement by law, there are certain areas that it does not cover, including:
- Damage to your own vehicle in an at-fault accident.
- Personal injury costs in an at-fault accident.
If you get into a serious accident that is your fault with minimum liability insurance, you’ll be responsible for your own vehicle damages and replacement, as well as your own medical expenses.
For this reason, many insurance agents recommend upgrading a liability auto insurance policy to a full coverage policy with:
- Collision Insurance – Covers vehicle damages sustained in an accident.
- Comprehensive Insurance – Covers vehicle damages outside of an accident, i.e. animal collision, fire, flood, etc.
- Medical Payments Coverage or Personal Injury Protection Insurance – Covers personal injury expenses in an accident.
In the great debate between liability and full coverage car insurance, which one should you choose?
The type of car insurance policy that you settle on will depend on your personal circumstances and your vehicle. If you’re looking for peace of mind, liability car insurance isn’t going to cut it.
Liability insurance protects you against legal liability if you cause a car accident. Liability insurance will pay for bodily injury and property damage to the other party in an at-fault accident.
If you don’t want to worry about paying for your own medical expenses and vehicle damages in an accident, full coverage car insurance is highly recommended.
However, this still doesn’t explain how your vehicle can dictate your car insurance choice. If you have a brand-new car and are still paying on a loan or lease, the odds are that your lender will require you to carry full coverage car insurance in the loan contract terms. This requirement will protect both you and the lender against any costly damages that may be incurred to your vehicle before it is paid off, no matter who or what causes a crash.
But as your car ages, it depreciates in value. Industry experts recommend abiding by the “Liability Golden Rule”: Once your car is eight years old or older, compare its blue book value against the cost of annual full coverage car insurance. If your annual collision and comprehensive coverage exceeds 10% of the current value of your vehicle (as mentioned above), it may be time to drop full coverage and stick with liability instead.
Of course, there is always a catch. If you decide to choose liability coverage without any policy upgrades, it helps to have enough money in the bank to pay for your vehicle repair and/or replacement costs out-of-pocket. If you don’t feel that you can afford such major expenses in repairing or replacing a vehicle that has been totaled, stick with full coverage insurance until you have a larger sum in savings.
Remember, full coverage car insurance will include liability insurance, plus some “extras” to protect you as a driver.
If you cause an accident with only liability coverage, you may not be able to afford to have your vehicle replaced if it is totaled
Or, in a worst-case scenario, you may be saddled with thousands of dollars in medical expenses that would have been covered with full coverage insurance.
How to Keep Liability Coverage Affordable
If you have taken the time to research liability insurance rates, you’ve probably discovered by now that car insurance certainly isn’t cheap
While liability is less expensive than full coverage car insurance, it could cost you more than you anticipate, depending on where you live in the country.
Here is a closer look at annual car insurance coverage by state
Average Auto Insurance Cost
US Average Car Insurance Rate: $1,567
If you live in Iowa, for example, you could pay as little as $1040 per year in car insurance. This is compared to a state like Rhode Island, where car insurance premiums may rise as high as $2298 per year.
What can you do to keep car insurance costs affordable, especially in a more expensive state?
First of all, it helps to understand that there are certain non-negotiable factors that may dictate how much you pay in car insurance, as evidenced in the chart below:
What impact your car insurance rate?
Static factors like age, marital status, and gender can contribute to 25% of your car insurance rates. The car make and model that you drive is another major determining factor at a whopping 18%. And, of course, you can’t forget your driving and claim history that impacts your car insurance rates by up to 35%.
One of the most effective ways to keep car insurance affordable is by buying only the amount of coverage that you need.
While it’s never recommended to skimp on car insurance, overpaying for coverage can create an unnecessary financial burden
You can discuss with your insurance agent one-on-one how much coverage is recommended based on personal factors, like the length of your daily commute, where you live, the type of car you drive, and your driving history.
You can also use helpful tips to lower your car insurance rates, like:
Compare three or more car insurance providers to determine competitive market rates.
Ask for special discounts, such as student discounts or lower rates for combined policies.
Consider continued driver’s education to improve a poor driving record.
Upgrade your vehicle with discount-friendly safety equipment, like antitheft devices and antilock brakes.
If you’re happy with your provider, stick with them for the long haul to earn discounts as a loyal customer.
If you take away one thing from this article, we hope that it is the importance of meeting state minimum requirements for liability coverage
Driving without insurance is never worth the risk
It can affect you and other insured drivers both financially and physically, especially if injuries aren’t covered in an accident. Once you meet liability requirements in your state, you can consider upgrading your policy with full coverage add-ons for complete protection every time you get behind the wheel.
Sage, Bobbie. “State-by-State Minimum Car Insurance Requirements.” About Personal Insurance – car insurance, home owner insurance, insurance quotes.
“Car Insurance Statistics, State-by-State.” Coupons and Deals: The hottest coupon codes and cash back