Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate drivers about...

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Reviewed by Laura Walker
Licensed Agent for 10 Years

UPDATED: May 11, 2021

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You may have heard the term “standard liability policy” referred to when people talk about automobile insurance. However, what exactly, is liability insurance and what does it pay for if you have an accident?

Liability insurance is the portion of your auto insurance policy that provides protection from an accident caused by your fault resulting in damages or injuries to someone else. It also pays if you are sued by someone as the result of an accident.

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How does Liability Insurance work?

Liability insurance is usually divided into two subgroups: bodily injury liability and property damage liability. Bodily injury liability covers only injuries sustained by the persons involved in the accident; it does not pay to fix cars or other damaged property.

Bodily injury liability may pay hospital bills, doctor’s fees and other costs associated with injuries sustained in a car accident. Property damage liability pays for damage to personal property, such as vehicles, fences, buildings, and anything else that may be damaged by your accident.

If you are the victim of an accident, then the other person’s liability insurance pays your damage, unless you live in a no-fault state. In most states, tort liability law allows you to collect the damages from the other driver’s insurance, or from the driver’s personal assets if your damages exceed the liability limits of the person’s automobile insurance coverage.

How much Liability Insurance can you buy?

Liability insurance is sold through a system of “limits,” which outline how much coverage you receive for the price you pay. Almost every state sets minimum liability limits which you must carry in order to legally operate a vehicle in that state.

These limits are set out in the declarations page of your policy and are usually listed in a dual manner, with the first number indicating the limit per person in an accident, and the second indicating the amount per accident as a whole.

For example, if your declarations page says that you have 25,000/50,000/15,000 in coverage, this means that you are covered for up to $25,000 per person and $50,000 for the entire accident for bodily injuries caused to other people, and $15,000 for property damage to other people’s cars or property.

Your own property, such as your car, is not covered by your liability insurance; you will have to make a claim against someone else’s liability insurance if they caused the accident.

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How much Liability Insurance should I buy?

While liability insurance is required by most states, few set the liability limits high enough to truly protect you if you cause a serious accident. With medical costs skyrocketing, and the price of vehicles remaining very high, it is entirely possible that you can exceed your liability limits in a single accident.

If this is the case, you will be personally responsible for the damages in excess of your liability limits if you live in a tort liability state.

Therefore, it is wise to purchase more than the required amounts of liability insurance if you have assets to protect, such as a house, other vehicles, or a bank account.

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Do I need liability Insurance in a state with no-fault auto insurance laws?

The rules are a bit different in no-fault states, but liability insurance may still be required. Theoretically, no-fault insurance laws mean that people cover their own damages, no matter who causes an accident, through their insurance coverage and personal injury protection.

However, every “no-fault” state still allows lawsuits if the circumstances warrant, such as when someone causes an accident in the commission of an illegal act. In that case, even no-fault states allow the victim to sue the other driver, so you may still need liability insurance to cover your damages.

Further, many no-fault states do not have “complete” no-fault laws, relying instead on a hybrid form of no-fault and tort law to allow drivers the option of retaining their right to sue. Pennsylvania offers limited and full tort options, and Pennsylvania, Kentucky, and New Jersey offer “choice” no-fault plans—drivers can elect to operate under either tort or no-fault.

This may seem very confusing, so the best way to ensure that you are covered against potential losses is to talk to several agents about your financial status and insurance needs.

In general, if you have few assets and do not require much protection, you can get by with less liability insurance; on the other hand, a judgment against you can be garnished from your wages and against any future personal property, so even if you do not have much now, it is a good idea to protect yourself for the future.

Deciding on liability policy limits takes time and research. Talk to several agents to get a good overall picture of the options in your state.

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Related posts:

  1. Full Coverage Car Insurance Versus Liability Insurance
  2. Michigan Auto Insurance Requirements
  3. New Jersey Auto Insurance Requirements
  4. What is No-fault Insurance?
  5. Colorado Auto Insurance Requirements