What is Liability Insurance?

If you are judged to be legally liable for an accident, you can be sued for the full cost of the damages, including property damage; hospital and medical payments; rehabilitative care; lost income; and even the pain and suffering of injured person(s). Liability insurance helps protect you from the financial impact of these costs. If the total of a given loss exceeds the amount of your liability insurance, however, you may have to pay the rest out of your own pocket. Since liability coverage protects your assets in this way, you can see why you need to consider buying more liability coverage than the minimum required by your state.

Note that almost all states require basic liability coverage. The Insurance Information Institute (III) provides a state-by-state listing of minimum limits for auto liability insurance on its website. Remember, your state’s requirement is a minimum— it’s up to you to determine how much insurance you really need.

Two types of liability insurance are offered:

• Bodily injury liability protects you in the event it’s determined you are responsible for an accident in which someone is injured or killed.
• Property damage liability covers the damage your vehicle causes to someone else’s property, such as their car, mailbox, or a fence on their land.

Auto insurance policies usually describe the amount of liability coverage in a series of three numbers, called Split Limits.

Suppose your coverage reads: “50,000/100,000/50,000”

1. The first number, $50,000, is the maximum the insurance company will pay for bodily injury to any one personin an accident.

2. The second number, $100,000 is the maximum amount the insurance company will pay bodily injury for a single accident, no matter how many people are injured.

3. The last number, $50,000, is the maximum amount the policy covers for damage to someone else’s property.

Bodily injury and property damage liability may also be shown as a combined single limit (CSL). The Combined Single Limit (CSL) number is the maximum dollar coverage (e.g., $100,000) for bodily injury and property damage combined, no matter how many people are involved or the amount of property damage. Note that all limits are per accident.

Many states require drivers to carry a minimum amount of liability insurance, approximately 20,000/40,000/10,000. That means $20,000 to cover injuries to any one person, $40,000 total for all injuries, and $10,000 for property damage.