UPDATED: Sep 29, 2020
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Everybody knows that car insurance, in one form or another, is mandatory in all 50 states (and when we say “one form or another”, we’re looking at you, New Hampshire). Legally, you’re required to purchase enough coverage so that if you cause an accident, regardless of how severe it is, you had the financial means to take responsibility for your actions and compensate the injured parties. In the automotive insurance industry, this is known as liability insurance.
So how much liability coverage should drivers have?
A “liability only” auto insurance policy is one of the most affordable policies you can possibly get — however, there are some very serious downsides to limiting yourself to such little coverage. Those include:
- Third-party and no-fault claims. If the accident was the other driver’s fault, or the accident is deemed a “no-fault” accident, then you are financially speaking up the creek without a paddle. Liability only pays out if you cause an accident, and the injured party comes after you for financial damages. You personally will not be compensated in any other situation.
- Acts of nature. If your car gets dented in a hail storm, flooded in a hurricane, swallowed up into a sinkhole by a giant earthquake, burnt to a crisp and a wildfire, or struck by lightning and rendered end mobile, you will be 100% financially responsible for finding a new means of transportation. Your liability coverage will not protect you in these instances. Payouts on these claims come from your comprehensive coverage, which is optional on almost all car insurance policies.
- Cosmetic damage From a collision. If your windshield cracks, if your bumper gets torn off, or any other physical damage happens to your vehicle as the result of a collision, your insurance will not pay out on any of these claims, either. these claims are paid out based on your aptly named Collision coverage. This is also an optional coverage and virtually every single car insurance policy.
If you’re only worried about costs, keep in mind that there are many cheap car insurance rates to be found for additional coverages, and you may end up spending more in the long run by buying the minimum required. If you want to find more coverage and save money while you do it, use our FREE comparison tool to get multiple quotes right now.
Understanding the importance of liability insurance
Whether you’re trying to save money by purchasing liability only insurance, or whether you’re concerned about the financial repercussions of not having enough liability coverage, it’s important to grasp the idea of what exactly liability does, who receives liability claim payments, and how to calculate the exact amount of coverage that you need in order to stay financially secure.
Here’s the thing: if you have tens or even hundreds of thousands of dollars in personal, private assets that you don’t want to be seized and liquidated in the event that you cause a catastrophic accident, then you need to purchase as much liability insurance as you can afford. In the event that you do cause an accident that severely injures, permanently disables, or even results in the death of one or more individuals, you are going to owe a lot of people a lot of money. And if you are deemed legally at fault for all of those damages, you won’t have any choice in the matter — your house, any vehicles you own, and any other valuable property (jewelry, art, electronics, financial investments, et cetera) will be sold to whoever can pay the most money in order to compensate the victims of the accident. Enter your zip code below to view companies that have cheap auto insurance rates. Secured with SHA-256 Encryption
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Understanding the anatomy of liability coverage
Liability insurance coverage is split into two different categories: bodily injury, and property damage. beyond that, your bodily injury liability coverage splits even further into two different subcategories: the amount you pay per person in the event that you cause an accident, and the amount you pay total for a single at-fault accident.
If all of that sounds a little confusing, consider the following example: you’re driving home late at night during a very bad storm and accidentally run a red light. You end up T-boning a car that was driving through the intersection. There are 2 passengers in that car: a mother and her small child. Everyone is alive, but the mother is seriously injured and her grand total and medical expenses comes out to $30,000. Her child on the other hand only has $21,000 in medical bills. And since you’re responsible for totaling her $25,000 car, your property damage liability coverage will pay for that too.
But here’s the catch: you live in Virginia, and you chose to only purchase the bare minimum liability requirement as mandated by state law. In Virginia, the mandatory State minimums only allow for a maximum of $25,000/$50,000 bodily injury liability, and $20,000 of property damage liability coverage. So in this scenario above, here’s how much you would owe with a bare minimum auto insurance policy:
- Since your insurance only covers $25,000 worth of medical expenses per person in an accident, you will be responsible for $5,000 of the mother’s remaining medical bills.
- Since you only have $20,000 of property damage liability coverage, the remaining $5,000 she needs to replace her vehicle will be coming out of your pocket.
- While the child’s medical bills are within the $25,000 coverage limit of your per person bodily injury coverage, it does exceed the $50,000 bodily injury liability coverage that your insurance company is willing to pay out per accident. That means that the child’s remaining $1,000 of medical bills will be your financial responsibility.
Now, let’s take a look at how much money you thought you were saving by purchasing a bare minimum liability only insurance policy. These are the average rates for Virginia drivers from various companies around the state for a liability-only auto policy: