What Is Car Liability Insurance?

If you cause a car accident, you may be responsible for the other party’s medical and property damage costs. Here’s how car liability insurance can help protect you financially.

Written by Jacqui Kenyon / January 26, 2022

Quick Bites

  • Car liability insurance is car insurance that will cover the costs of another person’s medical bills or property damage if you cause an accident.
  • Almost all U.S. states mandate that you carry at least a minimum amount of car liability insurance.
  • Car liability insurance won’t cover your own medical bills or damage to your property during an accident if you’re found to be at fault (there are other types of insurance for that).
  • It’s a good idea to protect yourself financially by having more than the state minimums for car liability coverage.

Imagine this: You’re driving down the highway, and there’s another car in front of you. A deer darts out into the road ahead of that car, and the other driver slams on their brakes to avoid it. Unfortunately, you don’t have enough time or space to stop, and you rear-end the car in front of you. The other driver ends up with a broken wrist, and the rear of their car is significantly crushed.

Since you hit the other driver from behind, you will most likely be deemed at fault for the accident. That means, depending on the rules of the state where you live, you may be responsible for the costs of the other driver’s medical bills as well as damage to their car.[1]

That’s where your car liability insurance comes in.

Car liability insurance is one of the three main types of auto coverage. It protects you by helping to cover expenses if you injure someone or damage property in a car accident that’s your fault. (The other two types of auto coverage are collision, which covers damage to your car in an accident, and comprehensive, which covers damage to your car that doesn’t come from a crash.) There are other supplementary types of car insurance, but they often aren’t mandatory, and offerings will vary by state.

In most states, excluding New Hampshire and Virginia, you are required by law to have car liability insurance on your vehicle.[2,3] If you don’t, you may be on the hook to pay for another driver’s property damage or medical bills yourself.

Inside this article

  1. How it works
  2. What’s not covered
  3. If you live in a no-fault state
  4. How much insurance to get?

How it works

Car liability insurance includes two types of coverage: bodily injury liability coverage (also known as “BI”) and property damage liability coverage (also known as “PD”).

  • BI covers damages for people who are hurt in an accident you caused. That could include medical bills, wages for time the injured person must be away from work, and compensation for physical and/or emotional pain as a result of the accident.

  • PD covers costs of property damage in an accident you caused. That could include damage to another person’s car, a fence or gate, or landscaping.[4]

In states that have minimum car liability insurance requirements, those requirements are typically broken down into three maximum figures: bodily injury coverage per person, bodily injury coverage per accident and property damage coverage per accident.

Ohio, for instance, has minimums of $25,000/$50,000/$25,000, which means you must have $25,000 of coverage for BI per person, $50,000 for BI per accident (in case more than one person is injured), and $25,000 for PD per accident.[5]

Tip: You get to decide how much coverage you have, as long as it’s equal to or greater than your state’s minimums. The less coverage you have, the lower your premium will be.

That doesn’t mean you should opt for the state minimum.

“While getting the minimum amount of liability coverage may seem the most affordable option today, there are risks involved,” says R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth. “And unlike, say, cell phone insurance, where in the worst-case scenario you lose the value of your phone, the risks of being underinsured are much higher.”

Another benefit of car liability insurance, beyond the actual dollar amount it will pay out if you cause an accident, is that you’ll have the heft (and the lawyers) of your insurance company behind you.

The insurance carrier has a responsibility to defend you legally after an accident where you’re at fault, says Dave Powell, head of auto claims at Travelers. “Even if you’re 100% at fault, we’re still defending you for the best outcome possible. And that’s on us—whether we hire one of our panel counsel to defend you or we hire experts to reconstruct the accident, that cost is on us.”

What car liability insurance doesn’t cover

Powell says that car liability insurance is “a mechanism to resolve an issue where you are legally liable for damages to a third party.”

That means car liability insurance isn’t going to cover your own medical bills or damage to your car or other property in an accident where you’re found to be at fault. 

First-party medical coverage, personal insurance protection or medical payments coverage would be what pays for the treatment of your injuries after a crash where you’re at fault, Powell says. Collision or comprehensive coverage would cover damage to your car, depending on what happened. The exact rules will depend on your state or even your jurisdiction within the state.

Car liability insurance also won’t cover damages beyond the coverage you’ve purchased. So if you only insure to your state’s minimums, like $25,000/$50,000/$25,000, and you cause an accident that totals the brand-new $40,000 car that you hit, you can be held liable for the remaining $15,000 it takes to cover the cost of the car.

If you live in a no-fault state

The purpose of car liability insurance is to cover the expenses of the person you injure or the property damage you cause when you are at fault in an accident. But what if you live in one of the 12 so-called “no-fault” states—Florida, Minnesota, Hawaii, New Jersey, Kansas, New York, Kentucky, North Dakota, Massachusetts, Pennsylvania, Michigan or Utah?[6]

When you live in a no-fault state, if you get into a car accident, you will file a claim with your own insurance company to cover any medical expenses that result from the accident. This is true regardless of whether you or the other driver is at fault for the crash. Since your own insurance policy will be the one paying out for your medical bills in the case of an accident, drivers in no-fault states must purchase personal injury protection coverage (PIP). PIP can pay for more than medical care—it can cover lost wages if you have to miss work, housekeeping or child/elder care and more.[7]

In no-fault states, it is typically very difficult if not impossible to sue the driver who caused the accident unless your injuries are very severe or very expensive.[8]

Tip: It’s important to note that no-fault rules only apply to medical expenses after an accident. You can still be held liable for property damage if you’re at fault in a car accident.

How much car liability insurance should I get?

All this information may leave you wondering how much car liability insurance you should get.

Powell says that there are two perspectives when it comes to buying insurance.

“The first perspective is, ‘God forbid something happens and I’m legally liable for damages that I create or cause to another individual. I wanna make sure that I’m doing my part to make sure that they can recover financially,’” he says. The other part is when you look around you, “you have assets, you have a bank account, you have a home that has equity, you have cars that are paid off. Anything that you would consider to be an asset, that might be something that a party could pursue.”

And your coverage limits aren’t necessarily set-it-and-forget-it. You should periodically examine and update your car liability insurance coverage to make sure it still meets your needs and adequately protects you.

“As your net worth increases, you should be looking at carrying additional limits,” Powell says. “Leading up to and including an umbrella policy.” (An umbrella policy is a liability insurance policy that covers your car as well as your home, boat and other assets. It’s designed to kick in if damages exceed the liability insurance limits on your home, car, etc.)

Weiss offers guidance similar to Powell’s. “A good rule of thumb is to carry the most amount of liability insurance you can easily afford to pay for,” he says. 

Article Sources
  1. “How to Prove Fault in a Car Accident Claim.” Nolo. https://www.nolo.com/legal-encyclopedia/car-accidents-proving-fault-29604.html.
  2. “Insurance Requirements.” New Hampshire DMV. https://www.nh.gov/safety/divisions/dmv/financial-responsibility/insurance.htm.
  3. “Uninsured Motor Vehicle Fee.” Virginia DMV. https://www.dmv.virginia.gov/vehicles/#uninsured_fee.asp.
  4. “Liability Insurance: How to Stay Protected.” Allstate. https://www.allstate.com/tr/car-insurance/liability-car-insurance-cover.aspx.
  5. “Automobile Financial Responsibility Laws by State.” Insurance Information Institute. https://www.iii.org/automobile-financial-responsibility-laws-by-state.
  6. “What does a no-fault state mean for auto insurance?” Coverage.com. https://www.coverage.com/insurance/auto/what-does-a-no-fault-state-mean-for-auto-insurance.
  7. “States with no-fault insurance.” Policygenius. https://www.policygenius.com/auto-insurance/states-with-no-fault-insurance.
  8. “Background On: No-Fault Auto Insurance.” Insurance Information Institute. https://www.iii.org/article/background-on-no-fault-auto-insurance.

About the Author

Jacqui Kenyon

Jacqui Kenyon

Jacqui Kenyon is a writer and editor, ghostwriter, editorial consultant and media coach based in Brooklyn, NY. Her work has appeared in Business Insider, Forbes, The Daily Beast, Rate.com, Fabric, and more.

Full bio

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