What is Liability Car Insurance and How Much Does It Cost?

Liability car insurance coverage is used to compensate others in an accident in which you are at fault.  Every state except for New Hampshire requires drivers have liability coverage. Some states such as Missouri have a low minimum requirement whereas North Carolina is on the high end.  Regardless of your state’s minimum requirement, insurers never recommend you only secure the minimum amount. If you cause a bad accident, you could be putting your financial future in jeopardy.

What Is Liability Insurance?

Liability car insurance pays for expenses incurred for injuries and medical bills that others incur as a result of an accident that you cause.  It also covers repair and replacement costs for property that you damage in an accident which you do not own. It does not, however, cover damage to your property or your medical expenses.  Furthermore, your liability insurance does not cover members of your household. Your collision insurance, medical payments coverage, PIP coverage, and health insurance cover these expenses.

Types of Liability Coverage

The primary types of liability coverage are:

1) Bodily injury liability

2) Property damage liability.

Bodily Injury liability compensates the driver of the other car, passengers, and pedestrians who you injure in an accident for both medical expenses and lost wages. This type of liability insurance is typically broken into two parts when listed in your insurance coverage.  These parts are 1) Bodily injury liability per person and 2) Bodily injury liability per accident. Car insurance companies recommend you purchase at least $100,000 bodily injury liability insurance per person.

The insurance company sets the maximum payout for both.  This limit is not the maximum amount of medical expenses the other parties can incur in an accident for which you are responsible.  You are responsible for paying any amount of liability incurred above the limit set by your insurance company.

Property damage liability covers repairing or replacing property that does not belong to you which you damage in an accident.  This can include the other car, street signs, mailboxes, and structures with which you collide. Your liability insurance policy lists your maximum property damage liability per accident.

Your liability insurance is normally listed as a combination of three numbers. For example, 100/350/100 stands for $100,000 of bodily injury liability coverage per person, $350,000 bodily injury coverage per accident, and $100,000 property damage liability per accident.  

The average bodily injury claim arising from an auto accident in the United States is less than $15,000 and the average property damage liability claim is less than $3,000 per accident.  Insurance companies recommend, however, that you have enough liability coverage for more severe accidents.

How Much Liability Car Insurance Do You Need?

You are required to have liability coverage by the state that you live in unless you live in New Hampshire.  If you pay an uninsured motor vehicle fee in Virginia, you can drive for a period of time without liability insurance.  The state sets a minimum amount of liability insurance which you must possess at all times to legally drive a vehicle registered in that state.

Florida requires the lowest minimum liability requirements of 10/20/10 while the highest minimum liability requirements of 50/100/25 are found in Alaska and Maine. Most states require minimum liability insurance of 25/50/25.

Car insurance companies, however, do not recommend that you only get the minimum amount of coverage. Since you are still responsible for paying damages that are incurred by the other parties above your insurance coverage, you need enough liability insurance coverage to protect your assets in case of an accident.  If you do not have enough liability insurance to cover these expenses, you can be sued and your personal assets can be used to cover the remaining expenses. Thus, insurers recommend that your bodily injury liability per accident to be at least as high as your net worth.  

Your net worth is the total value of your assets minus your debt. Your assets include your home, your car, your investments, and your savings.  Add these numbers together and subtract your debt to get an estimate for the amount of bodily injury liability per accident that you need. If you are a high net worth individual (or a low net worth individual), you may want to consider an umbrella policy to protect your assets or raise the maximum insurance payout amount for bodily injuries that you cause in an accident.

How Much Does Liability Car Insurance Cost?

As in any type of auto insurance, liability automobile insurance costs differently for different individuals. It also depends on the level of coverage. Different insurance companies will give you different quotes, so you should definitely price shop around, at least with 3-4 insurance companies.

For minimum coverage, liability insurance costs slightly less than $500 a year on the national average. It is not very expensive, especially when compared to the cost of not having it.

Liability car insurance costs by states:

South Dakota, Iowa, and Alaska have the lowest quotes for minimum liability car insurance, around $300/year, while it is the most expensive in New York, Florida, and Michigan where it can cost up to $1,000/year.

Liability car insurance costs by insurance companies:

Again, different liability car insurance companies will give an individual different quotes for minimum liability car insurance since insurance companies assess risks differently. For a 40 year old man with good credit and driving a 2016 Honda Camry, on national average, Geico offers the lowest quotes, followed by State Farm and Nationwide. Below are the nationwide average quotes of the top 6 insurance companies:

  • Geico: $352
  • State Farm: $456
  • Nationwide: $528
  • Progressive: $557
  • Farmers: $656
  • AllState: $661

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