What is Car Liability Insurance and How Much Do You Need?
How liability car insurance protects your wallet after a car accident
Around 6.7 million car accidents occurred in the U.S. in 2018, with an average insurance claim of nearly $16,000 for accidents involving bodily injury. So the chances of getting in a wreck are very real—and potentially costly. Liability auto insurance keeps you and other drivers protected from the high costs associated with car accidents. Without insurance, most everyday drivers wouldn’t be able to pay for the property damage or hospital bills that can occur in a wreck.
There are two types of liability coverage—bodily injury liability and property damage liability—and most U.S. states require at least one type if not both. “Liability” means your responsibility in an accident. If you’re at fault in a car accident, your liability insurance covers hospital stays, medical services for the other driver, and repairs for the other driver’s vehicle and any belongings. It may also cover court costs associated with the accident.
Liability insurance doesn’t cover your injuries or car damage. Depending on your state, if you’re at fault, your medical insurance may pay your hospital bills, and collision auto insurance (extra insurance coverage) may cover your car damage.
Let’s review the two types of car liability insurance probably bundled into your auto insurance, how much car liability costs, how to buy liability insurance, and how much coverage you need. Even if you live in a state like New Hampshire (which doesn’t require liability coverage for most drivers), it’s still wise to protect yourself proactively.
Bodily Injury Liability Coverage
If you’re responsible for a car accident, your bodily injury liability insurance policy (or “BI” coverage) covers the other driver’s medical expenses. Depending on your coverage, it may also pay for emergency services, legal fees, lost income, pain and emotional suffering, and funeral costs. Bodily injury liability covers injuries you cause while driving someone else’s car, too.
Your policy describes per-person and total cost coverage. For example, you may have a 25/50 policy, which would pay for $25,000 per person and up to $50,000 per accident.
In the dozen or so “no-fault” states, an insurer typically compensates their insured injured party, no matter who is at fault. Usually every driver in those states is required to carry personal-injury protection (PIP) or no-fault insurance. Depending on your state, you may also be required to carry coverage for uninsured drivers, which helps protect you if the other driver doesn’t have auto liability insurance.
Property Damage Liability Coverage
Property damage auto insurance (also called “PD coverage”) covers minor and significant damage to another person’s property—whether it’s a vehicle, home, or tree—that you caused.
Your coverage will probably be listed as a series of three numbers. Using the same pattern we mentioned above, your full liability policy might be 25/50/20. You’ll have $25,000 of bodily injury coverage per person, $50,000 per accident, and $20,000 of property damage coverage.
How Much Does Liability Insurance Cost?
Combined bodily and property liability insurance for a vehicle averaged between $304 and $964 per year between 2013 and 2017, with big differences in cost depending on the state. An insurance company considers your age, accident and driving history, coverage amount, who is driving, and location-related factors. For example, younger drivers tend to pay more due to a higher chance of engaging in risky behavior. Younger drivers aged 16-19 are nearly three times more likely to be in a fatal crash than drivers aged 20 and up.
Florida is the most expensive state for liability insurance, where drivers pay an average of $964.28 per year. North Dakota is the cheapest state for liability coverage at $303.66 per year, less than a third of Florida’s cost.
How Much Coverage Do I Need?
There are a few different ways to decide on how much liability coverage you need. If there’s a court judgment for more than your coverage, you’ll be responsible for whatever your insurance policy doesn’t cover. Your personal savings account or even your house could be at risk. Here are some options:
State minimum coverage: Each state’s minimum liability insurance requirements vary. For example, in Louisiana, drivers must have 15/30/25 liability limits as a minimum—paying $15,000 per person for bodily injury, $30,000 per accident, and $25,000 in property damage. On the other hand, in California, the minimum required liability limits are 15/30/5 as a minimum liability in California, with only $5,000 mandated for property damage.
While the bare-minimum policy could lower your annual insurance costs, you could pay more in the long run in an accident. For example, if you hit a family of four, $10,000 per person in claims will run $40,000, which is $10,000 more than your $30,000 California insurance would cover.
Coverage based on statistics: The average bodily injury claim was almost $16,000, while the average property damage-related claim was nearly $4,000, according to Insurance Information Institute statistics. You could consider buying enough to cover at least this much. However, some insurance industry and consumer groups recommend a minimum of $100,000 of bodily injury and $300,000 per accident.
Net-worth-based coverage: Some claims may be higher than the “average”—and outlier claims and court judgments much, much higher. Some insurance companies suggest purchasing a policy covering your net worth and slightly more. To calculate your net worth, consider your home, cars, savings, investments, and debt.
“It comes down to finances and how much you’re talking about protecting,” said Taylor Green, an Austin-based State Farm insurance agent. Green recommends finding a policy covering two to three times your net worth or annual income, or an additional $1 million “umbrella policy” for high-net-worth individuals.
An umbrella liability policy covers expenses above your auto liability insurance coverage, and helps you avoid losing assets or income. Umbrella policies usually start at $1 million, and insurers will often require a certain auto and home insurance amount first.
How to Shop For Liability Car Insurance
You can start searching for car insurance through insurance websites. Or use a word of mouth or online reviews to find a reliable, experienced insurance broker or independent agent.
Seek out a broker or independent agent who represents consumers and helps them choose among multiple insurance companies, rather than a “captive” agent who only represents one insurer. Request at least three to five insurance quotes; insurers could offer different prices based on your vehicle and personal profile.
Remember that cheaper doesn’t always mean better. “You’re ultimately purchasing the ability for your insurance company to settle a claim,” Green said. “Are they going to pay their claims? Who are they going to cover? That’s paramount when it comes to cost versus coverage.”
Call local auto repair and body shops to find out which insurers are easier to deal with versus those skimping on claims and repairs, Green said.
If you’re shopping for car insurance, ask around for the best quotes based on what you need and can afford. While liability insurance can be expensive, don’t automatically settle for the bare minimum. Consider buying the industry-recommended amount of coverage ($100,000 in bodily injury liability per person; $300,000 per accident), or at least enough to cover the cost of the average bodily injury claim (about $16,000) and the average property damage claim ($4,000). Paying a little more for coverage could protect you from much bigger medical and property damage bills in the long run.
Insurance Information Institute. "Facts + Statistics: Highway Safety." Accessed August 13, 2020.
Louisiana Department of Insurance. "Louisiana Department of Insurance Consumer's Guide to Auto Insurance." Accessed August 13, 2020.
State of California DMV. "Requirements for Vehicle Registration." Accessed August 13, 2020.
Insurance Information Institute. "Five Insurance Mistakes to Avoid... (and Still Save Money)." Accessed August 13, 2020.