What is Liability Insurance?

Liability insurance is the single most important aspect of car insurance. Liability insurance protects not only the driver from unnecessary and fraudulent claims, but also helps protect any parties involved in an accident. While liability will not cover a wide range of damages to you or vehicle, it is none the less required in almost every state. In fact, liability insurance is something that every driver needs to understand before deciding upon a specific insurance carrier.

Often referred to as "third party insurance," liability insurance provides protection from claims arising from injuries. It also covers damages to other people or property. Liability insurance is a promise to other drivers on the road that if you cause either damage to their vehicle or their person, that you will be responsible and cover the costs. Liability insurance is even required in no fault states that do not assign specific fault in accidents.

Understanding liability insurance

If you have just purchased a new vehicle, you must purchase auto insurance. While each state has its own set of rules and regulations regarding liability insurance, all companies refer to liability in the three number set such as 50/100/25. The first number refers to the amount of coverage provided if one person is injured. The second number refers to the amount of coverage if multiple people are injured. Finally, the third number refers to the amount of property damages that are covered. Of course, these numbers are actually the amount in thousands of dollars, i.e. $50,000 of coverage for a single person.

Minimum liability requirements

As previously mentioned, each state has specific vehicle insurance requirements. Most states require drivers to show proof of insurance before they can operate their new vehicle, while some only require the driver to show proof in the event of an accident. All but two of the 50 states require drivers to maintain a minimum amount of liability insurance such as 20/50/10; however, New Hampshire and Wisconsin only require drivers to prove they are financially able to settle any reasonable claim.

No fault states

Only a handful of states are no fault. A no fault state is one that does not assign blame in an accident. In these states, a driver's personal insurance covers their expenses. There are of course exceptions to the rule depending on the state. If you live in one of these no fault states, be sure to discuss what your responsibilities are in an accident involving other motorists.

 Bodily injury liability

Each insurance policy carries a dollar amount limit. For example, as previously discussed a 50/100/25 liability policy covers $100,000 dollars in medical bills, loss of wages, etc. for all third parties involved. However, with today's medical costs, this simply might not be enough. In fact, it is common for medical bills to reach over half a million dollars. Before choosing your auto insurance provider, be sure to discuss the pros and cons of each liability limit. You may want to increase these limits if you have been previously involved in a costly collision, or frequently travel in congested areas.

Uninsured motorist coverage

Though not required by law, carrying uninsured motorist coverage may be in your best interest. This type insurance protects drivers in an accident caused by an uninsured or underinsured driver. Though you may elect to take the third party to court, the chances of recovering damages are less than perfect. Contact your insurance agent to discuss the coverage and limitations available with this type of insurance.

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