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Liability Car Insurance: What Does It Cover? – The Motley Fool

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Purchasing the right auto insurance coverage is required by law and a smart move for drivers who wish to protect their assets. Liability car insurance is one of the most important types of insurance. Here's what drivers need to know about liability auto insurance and why it's so important.
If an insured driver causes an accident, liability car insurance covers the other driver's injuries and property damages resulting from the accident. A liability auto insurance policy covers the cost of medical expenses and lost wages of injured victims. And it can pay to repair or replace the victim's vehicle. A liability auto insurance policy will also pay for any legal bills resulting from the accident.
Liability car insurance only covers the damages claimed by the other driver — not the policyholder. Insurance companies work together after a car accident to determine who is at fault. Sometimes a court decides if there's a dispute. The at-fault driver's insurer pays for losses for other parties, up to policy limits.
Full coverage car insurance includes liability car insurance. But it also includes other types of car insurance coverage. The best full coverage car insurance policies may include:
It's important to understand the difference between liability vs. full coverage car insurance. Liability car insurance protects others. Full coverage insurance protects other people and the policyholder.
Liability car insurance covers losses a policyholder causes others. In many, but not all, states, it's common for drivers to be required to purchase a certain amount of liability auto insurance. For example, a state's minimum requirements might look like this:
This means the liability car insurance would pay for up to $25,000 in medical bills and lost wages for each injured victim. However, it would cover a maximum of $50,000 in damages for each accident regardless of the number of victims. It would also pay for up to $15,000 in property damage. If the policyholder was sued, liability car insurance also pays for legal bills.
Liability auto insurance does not cover any losses a policyholder personally experiences. It only pays for damages the insured driver causes to others.
Some examples of losses not paid for by liability only car insurance include:
Liability insurance also covers accident victims if a policyholder crashes a rental car. But it won't pay for damages to the rental vehicle. Drivers renting cars should see what credit card rental auto insurance their cards provide. It may be important to purchase a collision damage waiver if it's not a cardholder benefit. That protects against losses to the rental car itself.
The cost of liability car insurance depends on many factors including:
Drivers at high risk of collisions will pay a higher liability car insurance cost.
Motorists looking for cheap liability car insurance coverage can take steps to reduce rates. This can include signing up for a defensive driving course. Some insurers also allow policyholders to download an app that monitors their driving. This can result in cheap liability car insurance due to premium discounts for safe behavior.
Drivers who purchase more liability car insurance will pay higher premiums. That's because they transfer more risk to the insurance company.
A driver who buys only the state minimum coverage has very limited protection. Losses can quickly exceed coverage limits. That's especially true as at-fault drivers can incur legal bills and be held responsible for medical expenses, lost wages, and pain and suffering.
Paying extra premiums for additional coverage reduces the chance of the motorist being held personally responsible for losses exceeding coverage limits. Many drivers find this added protection is worth paying for.
In most states, liability auto insurance is required by law. That means every motorist must purchase liability car insurance coverage. Those who go without coverage risk fines and other potential legal penalties.
Many drivers find it makes sense to buy auto insurance liability coverage even if it isn't required. Without it, they would be fully responsible for covering all losses they cause to victims if they are responsible for a car crash.
The right amount of liability car insurance depends on the level of asset protection necessary, as well as the local requirements.
It's crucial to purchase at least the state minimum. This varies by location, but most states require at least:
Drivers who want more protection should buy more than the minimum required liability car insurance coverage. Those with lots of assets to protect need to ensure they have enough insurance so that they aren't held personally liable for losses.
The table below shows the minimum liability auto insurance requirements by state:
To find cheap liability car insurance, drivers should get quotes from multiple insurers. Shopping around enables motorists to find the best car insurance options for their situation. That's because some insurers charge more for drivers with specific profiles than others.
Many of the best companies for auto insurance also provide discounts for drivers who:
Motorists should ask insurers about opportunities to save so they can make sure their liability car insurance costs are as low as possible.
Liability car insurance doesn't provide coverage for a policyholder's car when someone else hits the vehicle. In most cases, the other driver would be held responsible for covering damages. If the other driver had insufficient insurance, uninsured or underinsured motorist coverage would pay for losses.
In some cases, automobile insurance premiums go up even for drivers who are not at fault. While some states prohibit this practice, a report from the Consumer Federation of America revealed prices rose as much as 10% in some cities even for innocent drivers involved in a crash.
Liability car insurance is part of full coverage auto insurance. Full coverage policies may include liability protection, collision coverage, comprehensive coverage, and uninsured or underinsured motorist coverage.
While it is less expensive to buy liability auto insurance only, the exact amount of savings varies depending on many factors including driving record, vehicle type, and vehicle safety features.
Drivers who choose to only have liability coverage take a big risk of major losses. Their insurer will not pay for their damages after a car accident or other incident affecting their vehicle.
Liability car insurance is necessary for many drivers because state law requires it. It also serves as a vital source of asset protection. Without liability insurance, a driver who causes a crash could be required to pay out of pocket for all personal injury and property damage losses victims experience.
Drivers may be covered by their standard auto insurance policy when renting a car. For motorists who do not have liability car insurance, buying coverage when renting a car may be important. This coverage protects against financial loss that could result from causing a crash in the rental car and injuring others or damaging their property.
Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today. She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor.
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