Automobile insurance can sometimes be a pain to figure out. This inconvenient truth not only applies to everyday drivers, but also the gig workers out there driving for Uber, Lyft, and other delivery companies.
It seems as though you’re always trying to shop around for new and cheaper insurance rates wondering, “What does liability insurance cover?”
And the thing is, every time you try to change your policy, you have an insurance agent on the other line trying to upsell you on the latest and greatest coverage with varying auto insurance quotes.
Wouldn’t it be nice to go in prepared and know exactly what does liability insurance cover and what you’re talking about before picking up the phone?
To that end, we’re going to explain liability insurance coverage — the required automobile insurance coverage needed in all states besides New Hampshire.
We’ll review what liability insurance covers, how much liability coverage you need, and how you can calculate your insurance policy coverage.
- What Does Liability Insurance Cover?
- How Much Liability Insurance Do I Need?
- Calculating Your Liability Insurance Coverage
- Do I Need Additional Car Insurance?
- What Is Umbrella Insurance Coverage?
- Drive With Peace of Mind
What Does Liability Insurance Cover?
Liability car insurance is the bare minimum insurance you need to operate a vehicle. Liability insurance will protect your personal assets if you’re ever responsible for causing damage in a car accident.
All states besides New Hampshire will require some form of liability auto insurance. This is the minimum level of insurance that you’ll need to purchase to operate your vehicle.
Without liability insurance coverage, you’re unable to buy additional collision and comprehensive coverage. This will include personal injury protection, medical payments coverage, and uninsured motorist coverage (which we’ll go into further detail below).
In most states, you’ll be required to purchase two types of liability insurance coverage — bodily injury and property damage liability insurance.
Bodily Injury Liability
Bodily injury liability coverage will cover medical expenses and lost wages for anyone you hurt in an auto accident. This includes bodily injuries to the driver of the other vehicle, passengers, bystanders, and pedestrians in an accident that you’re responsible for.
It can also extend to lost wages from missing work due to injuries, funeral expenses, and any legal fees incurred if the opposing party decides to file a lawsuit.
Property Damage Liability
Property damage liability coverage covers damage you cause to any property, whether it be the other driver’s property, public property, or government-owned property.
Property damage coverage includes the other driver’s vehicle and any property they have within their car. It can also extend to things like fences, guardrails, fire hydrants, light poles, landscaping, or buildings.
How Much Liability Insurance Do I Need?
The amount of liability insurance you’ll want to purchase will depend on how much of your assets you want to protect. As a rule of thumb, the more assets and savings (total net worth) you have, the more coverage you should purchase.
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Of course, you should only pay for what you can afford. But if you’re financially stable and have accumulated a high value of assets, then you should pay for a car insurance policy that will protect these assets if you ever get sued.
To give you an idea, if you were in an accident and at fault, the other driver could sue you and go after the value of all of your assets including your property, vehicle, home, and savings. If you haven’t accumulated many assets, then you don’t need to worry about forking over a bunch of cash to protect what you don’t own.
However, the caveat with this is that if you’re sued and you don’t have much to your name, you can still be held responsible and have your future earnings garnished to cover damages.
You should always be wary about operating with the least amount of liability coverage, especially if you can afford to pay slightly more for additional coverage.
In the case of an accident you’ve caused, your liability insurance coverage will be the first policy to pay for damages of the other driver, but not for damages to yourself.
This protects your assets from being sold or seized, however, only to the extent of what your policy covers. You, or an additional policy like umbrella coverage, will be responsible for paying the rest — but more on that below.
Liability policies are typically organized with three amounts of coverage. Each state will have its own coverage limits required by law, but all will have the following three amounts — injuries for each person, total injuries per accident, and property damage per accident.
A popular policy that drivers purchase can be structured something like this — 100/300/50. These numbers represent the following:
- $100,000 to cover injuries of each person
- $300,000 to cover total injuries for the accident
- $50,000 to cover total property damage for the accident
But remember, if you have more assets to your name, you may want to consider purchasing a more expensive policy.
Calculating Your Liability Insurance Coverage
Calculating the level of your liability insurance is relatively straightforward. If you don’t own much in the way of valuable assets, then you shouldn’t need to worry too much.
You can go with the cheapest deal. But if you have more to lose, you’ll need to add up all of your assets, subtract your debts, and then purchase a policy that will cover this amount.
First off, take everything you own and start tallying it up. This includes your home, vehicles, investments, savings, property, and any other asset you can think of. Let’s say this number adds up to $300,000.
Now take the outstanding debts that you owe. This can be student loans, business loans, credit card debt, or a mortgage. Let’s say these add up to about $50,000. Subtract that from the $300,000 and you get $250,000.
You should now be looking for a liability insurance policy that covers at least $250,000 in total bodily injuries for an accident. You should be most concerned about total bodily injuries since this tends to be the highest figure in an accident. Property damages are typically less expensive compared to lengthy medical bills.
Companies like Geico, Liberty Mutual, and Progressive all have insurance calculators on their site you can play with to figure out the best fit for you.
On top of liability insurance, you can also look into other types of automobile insurance to add to your policy.
Do I Need Additional Car Insurance?
In some states, it’s mandatory that you have more than the minimum coverage of a liability policy.
The following insurance policies offer additional coverage that you can include in your overall insurance plan.
Personal Injury Protection Insurance
Also known as PIP, personal injury protection insurance safeguards you and your passengers from minor injuries and lost wages incurred from an accident you’ve caused.
In no-fault insurance states, this type of insurance is required in addition to liability insurance. In this case, PIP covers damages before your liability insurance kicks in.
Medical Payments Coverage
Also known as MedPay, this type of insurance will cover injuries of you and your passengers regardless of who caused the accident. This insurance doesn’t cover lost wages and will often have a low limit of coverage.
Uninsured and Underinsured Motorist Coverage
This type of insurance has your back if you’re ever in an accident that wasn’t your fault and the other driver doesn’t have sufficient auto insurance.
This will cover injuries to you and your passengers if the other driver is unable to pay your bills. Instead, your own insurance company will step up and pay for damages.
You should note that insurance companies will have maximum limits of coverage. These will vary from company to company, but if you’re worried about needing additional coverage, you have one more option — umbrella coverage.
Collision insurance covers damages that occur to your car in an accident you’ve caused. This coverage will help you pay for repairs as well as an estimated value of your vehicle if you’ve totaled it in the accident.
Comprehensive coverage is somewhat of a catch-all for damages not covered by collision. This will include theft and damage caused by nature. For example, if there was a terrible hail storm and your car was dented, comprehensive coverage would handle this.
When you have a liability policy in combination with collision and comprehensive, this is considered full coverage. If you lease or rent a vehicle, in many cases, full coverage is required.
But what happens if damages are more expensive than what your policy is able to cover? What do you do then? You can purchase an umbrella policy that will protect from such instances.
What Is Umbrella Insurance Coverage?
An umbrella policy will cover any excess liability that isn’t covered by your automobile, home, or other insurances. This is like a safeguard to protect your assets if you ever get into a situation that requires more coverage than these provide.
Umbrella policies are your last line of defense if you were to ever be sued. If someone sues you for more than your auto insurance covers, an umbrella policy will have your back. Not only does this apply to automobile accidents, but it also applies to other instances.
For example, if you own a trampoline or swimming pool and have people over on a regular basis to use them, you may want to think about an umbrella policy. This will protect your assets if anyone ever gets injured and decides to sue.
Those who have much to lose and are financially well off are also prime candidates for an umbrella policy. For a few hundred dollars per year, you can protect all of your assets if an emergency ever comes up.
Drive With Peace of Mind
Liability coverage is required for you to legally operate a vehicle in all but the state of New Hampshire. But before pulling out your checkbook to renew your auto policy, consider some of the insurance options detailed in this article.
You may be paying far too much on your insurance policy, or you may not have enough coverage and you’re vulnerable to being sued if things were to ever go south.
Now that you have the answer to the question, “What does liability insurance cover?” you can make an informed decision so you can get on the road with peace of mind.
If you happen to be an Uber driver, you can also check out our guide to Uber auto insurance for more detailed information.