You may be wondering if it’s necessary to obtain liability coverage if you’ve recently purchased a new or used vehicle. Most states require drivers to buy a certain amount of individual coverage when choosing an auto insurance policy.
The purpose of liability coverage is to protect you when you are at fault for a collision. It covers the medical AND property damage expenses of the other drivers and passengers involved in the accident.
Coverage for Damages
Liability auto insurance can help minimise out-of-pocket expenses involved with paying for another person’s property damages. It may cover the cost of:
Structural repairs to homes and businesses.
Coverage for Injuries
Most states require drivers to carry injury liability insurance to cover the following costs for ALL people involved in an accident:
Emergency responder services at the scene of the crash.
Compensation for loss of income following injuries.
Legal maintenance fees for drivers listed on your policy.
A Look at Limits
You will encounter different limits as you review liability coverage policies, and it’s important to understand what they represent. Under no circumstances would an insurer’s maximum payout exceed the border that has been established in the policy.
Property damage limit:
The maximum amount of money your insurance provider would pay to compensate for damage to another person’s property.
Bodily injury limit per person injured: The maximum amount of money your insurance provider would pay to each person who is hurt during an accident that you caused.
Bodily injury limit per accident: Sets a combined cap on the full amount that your insurer would pay for all the injuries associated with one crash.
When determining this amount, keep in mind you’ll need a cash value high enough to cover the medical expenses accumulated by several people simultaneously hypothetically.
Shopping for Coverage
The first step when buying for coverage is to learn about your state’s specific requirements. It’s then up to you to decide whether you want to meet the minimum standards OR purchase a higher tier of coverage.
It can be risky only to purchase your state’s minimum required amount of liability car insurance.
When choosing your maximum coverage amount, remember that signing up for double the amount of coverage won’t necessarily cost you twice as much money. Paying just a few extra dollars per month could increase your payout maximum by thousands of dollars. Keep in mind, and there are maximum liability coverage amounts that insurers will not exceed.
Finding the amount of coverage that works for you will ultimately depend on a mix of state requirements, car insurance providers’ policies, AND personal circumstances.
Breaking Down Coverage Amounts
There is a particular three-tier format for how to break down liability coverage amounts.
FOR EXAMPLE, An auto insurance company might give you a coverage formula of 50/100/50.
Here’s what you need to know about this formula:
First tier: $50,000 per-person coverage limit for bodily injury.
Second tier: $100,000 per-accident coverage limit for bodily injury.
Third tier: $50,000 coverage limit for vehicle or property damage.
Choosing a coverage formula that looks like 50/100/50 means that your insurer will only cover up to the costs listed.
In this example, you’d be responsible for covering $5,000 out-of-pocket if the cost of another person’s bodily injuries totals $55,000 (since $50,000 is the maximum amount of financial responsibility your insurer agreed to cover). The same is true for the other two values in the formula.
Choosing the Correct Coverage Amount
Liability coverage is different than other types of automobile insurance because the amount you select has nothing to do with the current value of your vehicle. You can legally get by with choosing the minimum amount required by your state. However, this decision can have negative personal and financial repercussions if you are involved in an accident that causes severe damage.
What’s more, it becomes increasingly important to have a higher level of coverage if you own valuable property and assets. If you’re taken to court over the costs, other parties have incurred due to an accident you caused, and your possessions may be used as compensation.