How Does Auto Liability Car Insurance Work?

June 14, 2013

Find out the mimimum level of liability car insurance your state requires, what auto liability insurance numbers denote, and types of liability.

Auto liability car insurance is the only mandatory auto insurance required in most states. Some states require more coverage, but liability is mandatory in all but a couple of states.

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There are two types of auto liability insurance: bodily injury liability and property damage liability.

  • Bodily injury liability is designed to pay the medical expenses and lost wages in the event of an accident. There are two set limits on bodily injury auto liability insurance. One limit is the amount that will be covered for each person that is injured in an accident. The second limit is the total amount that your insurance company will pay for the entire claim.
  • Property damage liability insurance pays for damage that is sustained to someone's property. This also pays for an attorney and the settlement if you are sued. The limit of property damage auto liability insurance will probably be the same amount as your collision and/or comprehensive limits.

Basically, auto liability coverage provides a fixed amount of money that will become available to you for the purposes of paying for bodily injury or property damage which you are responsible for. It does not cover damage to your car, damage caused to you or your possessions by an uninsured driver, or medical expenses incurred as a result of an automotive accident.

Owning auto liability coverage means that you'll be covered up to a fixed amount to compensate for damage caused by you when driving, whether it be bodily injury or property damage.

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Understanding Auto Liability Insurance Numbers

Most states define auto liability insurance in terms of a series of three numbers. For example you might see a series of numbers that look like this: 10/20/30.

  • 10: This signifies the maximum amount, in thousand of dollars that an auto insurance company will pay out for each person that is injured.
  • 20: This is the maximum amount, in thousands of dollars that an auto insurance company will pay out for all bodily injuries in one accident.
  • 30: This signifies the maximum amount, in thousands of dollars that an auto insurance company will pay out for property damage.

These represent the minimum amount for a particular state. You may choose a policy that will pay out more in the event of an accident since medical expenses can reach in the thousands of dollars, but this will increase the price of your monthly insurance premium.

Protecting Your Assets with Thorough Coverage

Too many drivers think that they have done their duty by signing up for the basic auto liability insurance required by the state. What they don't realize is that basic liability does not cover a whole range of situations where a driver could lose a significant amount of the investment that they have made in a car or truck. After all, when you throw down that mountain of cash or credit to purchase nearly any vehicle in good condition, you're buying a large asset that needs protection from harm. A vehicle is on the road, and therefore vulnerable, and additional insurance helps ensure that the investment will not be ruined by an unpaid claim situation.

Collision Insurance
Basic liability, in many cases, does not even cover damage to your own vehicle. Liability insurance covers what happens to the other driver's vehicle in a crash where you are at fault. It does not always protect the damage for the vehicle of the driver at fault in a claim. Collision coverage provides insurance for when you are at fault, when you wreck into another vehicle and need help fixing your own. Without a collision policy that comes with an additional price tag, you could spend literally thousands of dollars in body work for just one fender bender.

Gap Insurance
Gap insurance covers the difference between the value of a car and what you owe on it. For drivers who have bought a car with a long term loan, or have bought a new vehicle that depreciated quicker than they could pay it off, gap insurance "fills in the gap" and provides more complete coverage.

Medical Liability
The state's requirements for medical liability often max out at low amounts. One hospital visit from a crash can exceed a $50,000 price tag in some situations. Think about getting an additional medical liability amount to make sure to cover costs of being in a crash.

Uninsured Motorist Coverage
This kind of supplemental insurance is a little trickier. Drivers who don't understand the finer points of this insurance product fail to see why it is so important.

Here's how it works. A driver gets hit by another driver who has no insurance. The money needs to come from somewhere. The at-fault driver has no insurer. He or she also has no money or assets, and works at a low paying job where garnishing wages would not provide even 1/10 of the cost. That's where uninsured driver coverage comes in. With this product, the "victim" driver's insurance will pay them on the claim.

All of these products help to "hedge" auto insurance to make sure a responsible and conscientious driver does not lose out on a claim. All of them need to be evaluated carefully to make sure that they provide adequate coverage that will truly pay claims for the road ahead.

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How to Find Affordable Auto Liability Coverage

Auto liability coverage usually meets the minimum car insurance requirements in most states. Getting auto insurance can be expensive, but if you need cheap car insurance, auto liability insurance is as inexpensive as it comes. You can follow these steps to find the cheapest car insurance available and drive legally for as little as possible.

Step 1: Research Providers
There are many different insurance providers available, each claiming to have the lowest price on car insurance. The Internet is the easiest way to get preliminary quotes from a lot of providers at once since most providers now have an instant online quote feature. Check out the websites of providers such as AllState, Esurance, Progressive, State Farm and whatever others you can think of to get a lot of quote estimates.

Step 2: Search for Discounts
There are discounts available to many different groups of people. If you're a good student, you could qualify for a discount; if you're a veteran or in active service, you could qualify for a discount, and so on. See what categories you might fit into to be eligible for savings. Even if you don't fall into any special groups, you can still get discounted auto insurance by completing driving courses at DMV approved traffic schools.

Step 3: Compare Offers
After discounts are applied, all that remains is to compare the final offers you've been given and pick the one you want. Depending on the amount of liability coverage offered, you may find that a slightly more expensive monthly payment is actually a better deal. If all you want is to legally drive for as little as possible, the lowest price is what you're looking for.

By following these steps, you'll be able to find auto liability coverage at the best available prices.

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Checking the Minimum Level of Auto Liability Insurance in Your State

There are only 2 states that don't require liability insurance to drive, but in those states you must prove that you have the available assets to cover the costs of any accident you may cause. Checking the minimum level of required auto liability insurance in your state starts with an online search.

Searching online it is easy to find a state by state breakdown of the minimum auto liability requirements. Only 2 states, New Hampshire and Wisconsin do not require it, but, as already mentioned, there you must prove your assets in order to cover any costs. An important thing to remember is that although each state has a minimum set level of auto liability insurance, often it is not enough to cover damage that you may inflict on persons or property in the event of an accident.

For example, the state of Oregon only requires that you possess $10,000 in property damage protection, but should you be at fault in an accident that totals a car worth $20,000, you are responsible for paying the different out of pocket. The same thing applies to personal injury liability. The minimum amount of coverage will only cover a hospital stay up to a point, and depending on the seriousness of the injury inflicted, you could be held accountable for a lot of medical bills. In other words, the minimums are in place in each state as a level of basic protection you are required to purchase, but they should not be thought of as amounts that will fully indemnify you from liability.

Of course, the purchase of insurance is not a good substitute for safe, responsible driving. Insurance is not meant to foster a moral hazard, leading to the belief that because you are insured you can drive as aggressively or irresponsibly as you want. Likewise, the minimum requirements are a starting point, a level of basic coverage that it is wise to build upon.

Checking the minimum level of auto liability coverage required in your particular state starts with an Internet search. Once located, you will see the minimum amount of personal liability and property damage insurance you must purchase to drive legally in your state of residence. The minimums are not designed to be the only coverage you possess; rather, they are intended to ensure that all drivers have basic protection from other drivers' mishaps. The wise choice would be to start with the basics and increase your coverage to protect yourself in the event that an accident happens.