Let’s start with the most basic question: What exactly does "liability" mean? It’s a word we most often hear when talking about insurance. Being liable for something means you're responsible (or at fault) for the incident. Liability insurance, then, takes care of your responsibility for paying for the damage to someone else's vehicle (or other property) or for any injuries to the occupants of the other car when you’re at fault in an accident.
This is the most basic kind of auto insurance there is. Almost every state in the country requires liability insurance, and it’s also one of the oldest types of insurance available. Almost as soon as there were cars that could get into accidents, there were insurance companies and agents selling liability insurance to drivers.
What Does Liability Car Insurance Cover?
If you cause an accident, liability insurance covers the medical costs for anyone injured or the repair costs for any property damaged in the accident . There are two types of liability coverage, and they’re usually sold together by insurance agents:
- Bodily Injury (BI) Liability: This type of insurance covers the medical expenses, pain and suffering, and loss of income for injured occupants of the other car if you’re at fault in an accident. Bodily injury liability insurance also applies to yourself and family members on your policy while driving someone else’s car. It can also cover injuries to pedestrians and bystanders who might have been hurt in the accident.
- Property Damage (PD) Liability: This covers the repair costs for the car (or maybe the fence, tree, or guard rail) that’s been damaged in an accident you caused. Property damage liability insurance also covers these costs if someone else is driving your car with your permission and causes an accident. Property damage liability can also cover defense and court costs if you’re sued after the accident.
There is no deductible for liability insurance, so you won’t have to pay out of pocket before it kicks in to cover these costs for the injured parties.
What Is Not Covered by Liability Insurance?
If you’re not liable for an accident – you’re not at fault for causing it – then your liability insurance will not cover the other person's injuries or repairs. The liability insurance of the driver who did cause the accident will cover those costs.
If you are liable for an accident, your liability coverage is there to pay for the injuries and damages to others, not yourself or your car. Your collision coverage will pay for damages to your car. This is an optional type of auto insurance, so it will add to your premium, and usually has a deductible. But it means paying less out of pocket when you cause an accident and need repairs to your own car.
Similarly, your liability insurance won’t cover injuries you sustain in an accident you caused. You can opt to include medical payments coverage in your car insurance, often known as MedPay, or you can rely on your health insurance policy to cover medical costs after an accident.
When you buy liability insurance, you choose the limits. Each state has its own minimum requirements, but you can choose to buy coverage beyond the minimum. Any repairs or medical costs for the other vehicle and its occupants that are above your limits will not be covered. We’ll cover this in more detail in the next section.
Who Needs Liability Insurance?
Nearly everyone in the United States needs liability insurance. It is required in 49 out of 50 states (New Hampshire is the sole exception) plus the District of Columbia. In some states, it’s possible for drivers to carry no car insurance beyond basic liability coverage to cover the costs of damage or injury to the other car and its passengers.
As we mentioned, every state has a minimum for liability coverage requirements. These minimums are often written as three numbers with slashes between them, for example, 25/50/10. That corresponds to the following coverage limits:
- Bodily injury liability limit per person: $25,000
- Bodily injury liability limit per accident: $50,000
- Property damage liability limit per accident: $10,000
In this example, the insurance company will cover up to $25,000 in medical costs for each person injured in the accident, with a maximum of $50,000 in total for all the people injured in the accident. It will also cover up to $10,000 in repair costs to the other vehicle or any other property that was damaged in the accident.
How Much Does Liability Insurance Cost?
As with everything in the insurance arena, the cost of liability insurance depends on the limits you choose as well as your driving record and demographics. Meeting only the basic state minimums is usually inexpensive, though this low amount of coverage is usually enough just to cover minor fender benders or similar accidents. If the accident is more serious, and you cause significant damage but don’t have enough coverage, you can be sued.
The Insurance Information Institute recommends buying enough liability insurance to protect your assets, like your house and bank accounts.
Read our guide on insurance discounts to see if you may qualify for a lower rate on your car insurance.
Do I Need Liability Insurance?
Almost certainly yes. The only exception is if you're a resident of New Hampshire. For everyone else, you’ll want to find out what your state’s minimum requirement is. Your insurance agent can share this information with you.
You’re probably wondering if liability insurance is still required if you live in a “no-fault state.” If no fault can be assigned, then no one is liable, right? Not exactly. No-fault states still recognize liability for accidents, and they all still require liability insurance in addition to personal injury protection (PIP) insurance. If you are liable for the accident, then the other driver’s PIP coverage will pay for their injuries first. If that’s not enough to cover medical expenses incurred during the accident, then your liability insurance will cover the rest.
It’s worth noting that if you drive for a ridesharing company like Lyft or Uber, you need more liability insurance than you do when you’re driving as private individual. While the ridesharing company’s insurance policy probably covers you when you are on your way to pick up a passenger and when that passenger is in your car, based on your use of the ridesharing app, it likely does not cover you before accepting the trip. Rideshare drivers should opt for at least the following liability coverage limits in their personal car insurance policies:
- $50,000 in bodily injury coverage per person
- $100,000 in bodily injury coverage total per accident
- $30,000 in property damage coverage
Consider These Scenarios
The first scenario is the one that happens the most often, and it’s the reason liability insurance has been available nearly as long as automobiles have been. It’s the simple fender bender. You’re waiting at a red light, and you see it turn green. Without thinking, you step on the gas, but the car in front of you hasn’t moved yet. The accident is enough to crumple both bumpers, so you pull over to exchange insurance information and call the police to make a report.
You’re found liable in this case because you jumped the gun on the green light, so your property damage liability insurance will cover the costs of repairing the other car. The repairs will cost $5,000, and you have the state-required minimum of $10,000 in property damage liability coverage, so those bills will be easily covered by your insurance.
In scenario two, things are more serious. You change lanes without looking and swerve into another car, hitting it and forcing it into the concrete barricade to its left. That car and its driver are pretty banged up. Again, you’re found liable, so your bodily injury and property damage liability insurances will be called on to pay for the driver’s medical bills and the repairs to their car.
You have $25,000 in bodily injury liability insurance, and the driver’s expenses total $20,000 for doctors and a couple of weeks of lost wages. Your insurance will cover that bill. But your $10,000 in property damage liability insurance will not cover the costs of repairing the damage done to the car when it hit the barricade, which totals $15,000. You’ll have to pay the $5,000 that's over your $10,000 limit out of your pocket, or the other driver can sue you for that money. This is where having additional liability coverage can protect your assets when the bills following an accident are very high.
In the third scenario, the same accident happens. You swerve left without looking and the other car crunches into the barricade. This time, there are three people in the car, and they’re all injured. They visit their doctors, and the costs add up to $75,000 for all three people, including medical bills and lost wages. Your bodily injury liability limit per accident is only $50,000, so you’re on the hook for another $25,000. Again, this will come out of your pocket or the people injured in the accident can file a lawsuit against you for that money.
It can be a fine line to walk between having enough liability coverage in the case of an accident and being able to afford your premiums. An insurance agent can help you figure out the best budget for your situation. It may mean less liability coverage and lower premiums at first. Then you can raise your liability limits as you start having assets to protect, such as a savings account or a house you’ve bought.