How does automobile liability work?

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Auto insurance companies offer several types of coverage. Responsibility is one of the most important. If you cause an accident, your liability insurance is the part of your policy that covers damage and injury suffered by the other party. Since car accidents can result in high medical bills and vehicle repair bills (and sometimes even lawsuits), having proper liability coverage is essential to protect your financial health.

Most states require drivers to have at least minimum liability coverage. However, state minimum limits are often relatively low and may not provide sufficient protection. While minimum limits can lower your premium, you could face considerable expense if you cause an accident and the damage exceeds your insurance limits. Bankrate has studied the average cost of various liability limits to help you decide whether the additional expense of the higher limits is worth the additional coverage.

How much liability coverage do you need?

You’ll need to purchase at least your state’s minimum liability limits to legally drive in most states (excluding New Hampshire or Virginia), but is that enough? While lower limits usually mean a lower premium, purchasing state minimum limits can expose you more financially. If you cause an accident, your insurance will only pay up to the amounts in your policy. Lower limits run out faster, potentially leaving you with additional fees.

Fortunately, it doesn’t cost much to buy more liability coverage, according to Bankrate’s analysis of different liability limits and their impact on auto premiums. The table below shows the average cost of purchasing liability coverage in excess of state minimum amounts. The level of responsibility is presented in three digits, separated by a slash. These figures are the amount of coverage for:

bodily injury per person / bodily injury per accident / material damage

You can see the difference in premium for purchasing different levels of liability coverage. Each of the premiums below is for a full coverage policy with $ 500 in full and collision deductibles. Liability limits vary from state minimum coverage up to 250/500/100.

The prices include civil liability for bodily injury per person and per accident and civil liability for material damage, respectively. PIP and Uninsured / Underinsured Motorist coverage is applied for states that require it.

Although higher limits cost more, you get much more financial protection by reducing the risk of paying additional fees in the event of a at-fault accident. Buying liability insurance is a bit of a balancing act. You need to make sure you’re on budget so that you don’t stress your monthly finances, but you want to feel comfortable with your level of coverage if you do cause an accident. If you are unsure of how much coverage to purchase, you may want to get quotes for different levels and discuss your options with a licensed insurance agent.

What damages are covered by automobile liability insurance?

By the nature of accidents, you probably never intend to cause one. But car accidents do happen, and when they do, you probably want to know your finances are protected. Even minor accidents can result in hundreds or thousands of dollars in repair bills, and medical expenses can add up even faster. Liability insurance can help protect you from financial devastation by avoiding high out-of-pocket expenses.

Types of Liability Coverage

Liability coverage has a few components. Liability for bodily injury pays for injuries you cause to the other party and is generally divided into two parts, “per person” and “by accident”. The per person portion pays up to the amount of your coverage for the injuries you cause to each person in an accident, excluding passengers in your vehicle, and the per accident portion sets a cap on the total amount that your insurance covers. will pay for medical expenses. Liability coverage also includes Property Damage Liability, which pays for damage you cause to the other party’s vehicle, as well as damage you cause to items such as fences, buildings, and property. personal.

Coverage for uninsured and underinsured motorists

Keep in mind that liability coverage only pays for the damage of the other party, not yours. However, the coverage options for uninsured and underinsured motorists are structured the same as third party liability, but pay your damages if someone hits you and doesn’t have insurance or enough insurance to cover. your expenses. Essentially, you are buying coverage for the drivers who don’t. In some states, one or both of these types of coverage is required.

How does automobile liability work in no-fault states?

Liability insurance is a little different in no-fault states. 12 states currently have no-fault laws in place:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • new York
  • North Dakota
  • Pennsylvania
  • Utah

Unlike the name, there is always a defect in non-defect states. To understand how and why, we need to talk a little bit about how no-fault insurance works.

No-fault states generally require drivers to wear personal injury protection (PIP). PIP primarily covers medical costs for you and your passengers and pays regardless of fault. It also covers lost wages and the cost of household expenses if you cannot meet them due to an injury sustained in a car accident. PIP does not cover property damage, this is where some confusion occurs. Even in no-fault states, the parties at fault are still liable for the property damage they cause.

Plus, even though PIP is the first coverage to pay for your injuries, that doesn’t mean fault will not be determined. Most no-fault states still require that drivers take responsibility for bodily injury. Once fault is determined, the responsible party’s bodily injury liability coverage could begin to pay for your injuries, even if the PIP paid off first.

Other factors to consider when buying auto insurance

While your level of liability is a big part of your auto insurance premium, it’s not the only factor to think about. If you choose full coverage, your deductible level will also affect the amount you pay for coverage. If you have a loan on your vehicle, you will likely need to purchase comprehensive coverage. And if you are renting your car, you may even need to purchase some liability coverage – often 100/300/50 – as part of the rental agreement.

Your coverage levels may also depend on the value of your assets. As a general rule, the more wealth you have to protect, the more coverage you are likely to need. Even without significant wealth to protect, your liability coverage can help you avoid financial ruin if you cause an accident. Buying appropriate coverage limits could help you manage your budget and overall financial health.

Finally, you may want to change your liability limits when experiencing life events, like adding a teenage driver to your policy or buying a home. For example, because teenage drivers tend to no more accidents, having higher limits of liability could protect you from out-of-pocket expenses if your teenager causes an accident. Owning a home means you have more assets to protect. When you are going through life changing events, it may be a good idea to discuss potential changes to your policy with an insurance agent.

Methodology

Bankrate uses Quadrant Information Services to analyze 2021 rates for all zip codes and carriers in all 50 states and Washington, DC Rates shown are based on a 40 year old male and female driver with a clean driving record , good credit and the following comprehensive coverage limits:

  • $ 500 collision deductible
  • Global deductible of $ 500

Liability for bodily injury: The rates were calculated by evaluating our base profile with the following limits applied: minimum condition, 50/100, 100/300 and 250/300.

Civil liability for material damage: The rates were calculated by evaluating our base profile with the following limits applied: minimum state, $ 50,000 and $ 100,000.

Coverage for uninsured / underinsured motorists: The rates were calculated by evaluating our base profile with the following coverage amounts applied: minimum condition, 50/100, 100/300 and 250/500.

Protection against injuries: The rates were calculated by evaluating our base profile with the applied state minimums.

To determine the minimum coverage limits, Bankrate used a minimum coverage that meets the requirements of each state. Our basic profile drivers own a 2019 Toyota Camry, commute five days a week and cover 12,000 miles a year.

These are sample rates and should only be used for comparison purposes.


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