Simplifying the Definition of Auto Liability Insurance

It’s that time of year again: you pull out your auto policy renewal package from your mailbox and it feels like one of the thickest books you’ve ever held. You wonder how in the world the insurance companies expect you to understand all that insurance jargon anyways, so you probably end up doing what so many people do: you check the premium amount, and then you file it away only to never carefully glance through it.

It’s rare that someone actually dedicates time to reading every single sentence of their policy, but if they understood what was on their policy, and what each coverage meant, they probably wouldn’t feel so frightened about what’s inside that policy.

However, by not being well informed about what’s on your policy could lead to a very serious situation, and knowing each coverage you have, how it works, and what each coverage means is of the utmost importance. While there are many different kinds of coverage on your auto policy, if you can learn bit by bit what your coverage means, you’ll be prepared for anything that happens that causes you to need your coverage.

One of the most important types of coverage on your policy, and basically the most important coverage, is your liability insurance. Understanding liability and how it works, as well as what it pays and when, will allow you to better choose coverage in the future that takes care of unfortunate accidents.

So What Is Liability Insurance?

Occasionally you’ll hear people refer to this coverage as ‘liability only’ versus a policy with ‘full coverage.’ What this means is that you are carrying coverage to pay for any damage or injuries you cause to another person’s property or another person should you be deemed the at fault driver.

In plain English, liability insurance tells you how much the limits are that will pay for things like another person’s injuries, legal expenses, property damage (such as their car, home, or a telephone pole for instance) and in the worst case, death if you’re the at fault driver. Liability coverage does not pay for any damage on your vehicle, nor any medical expenses. If you were involved in an accident and the other person was at fault, their liability would pay for that. If you have a liability only policy, then you have absolutely no coverage for yourself and also your passengers in most scenarios.

There are two categories under liability insurance: property damage liability and bodily injury liability. You have to choose the limits of both, and of course carrying the highest limits possible is suggested, as imagine if you hit a Mercedes SUV with six people in it and all were injured: it wouldn’t take very long to reach $50,00 in medical expenses if all were hurt, and once you establish the limits you want, your insurance policy will only pay up to those limits, and then you would be responsible for paying the difference.

Typically you will see the limits written out like this: 25/50/25. These are your coverage limits, providing 25,000 per person and 50,000 per accident for bodily injury coverage and up to $25,000 in coverage for their property damage. Therefore, it’s of the utmost importance to carry the highest limits you can. Although some states only require a certain amount, this doesn’t mean you’re adequately covered, and in fact, it just means you’re legal to drive.

Bodily Injury Liability

If you take a look at bodily injury liability, it’s helpful to think of a scenario and how it would be impacted. For example, say you were to rear end someone and they were severely injured and had to go to the hospital. Fortunately, the hospital didn’t find anything life threatening from various, expensive tests like MRIs.

But then the person receives six months of physical therapy and goes to a chiropractor. Assume they also missed a couple weeks of work and were also unable to care for their children or do other routine things, meaning they had to hire a babysitter and caregiver. Add up all of these costs and you can quickly hit the amount limit on your policy, as it all falls under your bodily injury liability. If all these expenses added up  to $100,000 and you only carried $50,000 in coverage, your insurer would only pay up to $50,000 and you’d be held accountable for the rest, meaning you could have a legal judgment placed against you that seized all of your current assets and any future ones as well until that amount if paid for.

Property Damage Liability

Imagine now that the same person you rear ended drives a very expensive Mercedes and it’s totaled. What if you lived in a state like Florida where the property damage liability limits required were only $10,000 and that’s all you carried? You’d now not only have to pay $50,000 in bodily injury coverage, you’d have to pay $60,000 out of your own pocket if you only have $10,000 in coverage and the vehicle costs $70,000 to replace.

The bottom line is that you need to increase liability limits as much as you can. Amazingly, you’d find that adding an extra $50,000 in coverage is often only a few dollars a more in premium monthly, so skipping a trip to McDonald’s once a month would pay for this peace of mind. Additionally, having a good driving record will decrease your premium, so if you have this going for you, you’re looking at paying even less for higher limits. In fact, many companies give discounts just to those who carry higher limits as they’re deemed a ‘responsible driver.’

Accidents can’t be planned, and all you can do is be as well prepared as you can. Just because you’re a safe driver doesn’t mean the worst case can’t happen, so be prepared and pay for those higher limits.