What Does Liability Insurance Cover?

Ready to hit the road? While everyone hopes that’s the only thing they hit when they get behind the wheel, that’s not always how it works out. And that’s where liability insurance comes in. What does liability insurance cover? Liability car insurance covers your . . . ahem . . . trunk in case you cause an accident.

What Does Liability Car Insurance Cover?

Liability car insurance covers damage you do to someone else in a car accident, including medical and legal bills. There are two types of costs from an accident that liability will cover: bodily injury and property damage.

Bodily injury: Covers medical bills for the injuries of other people involved in the accident.

Property damage: Covers damage to the other person’s stuff—their car is a big one, but also anything else you hit like a mailbox or wall.

We recommend getting at least $500,000 combined in liability. It’s relatively cheap to push your limit up that high, and medical bills (or worse—lawyer fees!) can add up quickly. We can’t stress how important this step is to keeping your finances from crashing harder than a celebrity in a sports car. (In fact, if your net worth is over $500,000, you should look into getting an umbrella policy on top of the liability coverage your auto policy provides.)
 

What Does Liability Car Insurance Not Cover?

Part of answering What does liability insurance cover? is looking at the opposite: What doesn’t it cover?

Liability car insurance does not cover you. Liability is also known as third-party coverage.

If you wrap your car around a telephone pole or get whiplash, your liability insurance won’t cover your repair or medical bills. That’s where other types of coverage—like your health insurance or auto collision insurance—come in.

(And that’s why getting the right types of insurance to protect yourself financially is such a big deal.) Depending on what state you live in, you may need to look into getting personal injury protection or medical payments coverage as well.  

What Is Bodily Injury Liability and What Does It Cover?

Bodily injury coverage helps pay for the other person’s medical bills if they got hurt during an accident you caused. That includes other drivers, their passengers and pedestrians.

This part of your liability insurance also covers things like:

• Lost wages if the other person can’t work because of their injuries
• Prescriptions
• Rehabilitation
• Legal fees if that person sues you
• Pain and suffering (if they win that lawsuit)
• Funeral costs after a fatal accident

What Is Property Damage Liability and What Does It Cover?

This part of your liability insurance covers the cost to repair or replace another driver’s vehicle after an accident. It also pays for damages to other property, like guardrails, buildings or telephone poles. Diminished value (the difference between what the car is worth before having an accident on its record versus after) is covered too.

Liability Car Insurance Limits 

So far, this stuff sounds awesome, right? Well, it is. But you should know: Liability car insurance won’t cover every single expense from now ‘til forever. Like all insurance, liability policies come with coverage limits.

The coverage limit is the maximum amount the insurance company will pay. Anything over the coverage limit comes out of your wallet.

Reading Liability Car Insurance Limits

Figuring out what you’re looking at when trying to read liability limits can be tricky. There are numbers, and more numbers, and . . . why are none of the numbers matching up to the limit I purchased?!

There are two types of coverage limits for liability car insurance: split coverage limits and single coverage limits. Let’s dig into what each one means and how to read them. 

Split Coverage Limits

Most liability policies have separate (aka split) coverage limits for each type of damage. That means the insurance company will pay up to a certain amount for bodily injuries and up to a different amount for property damage.

On your insurance policy, split coverage limits are usually written out as three numbers. For example: 25/50/15.

Here’s what each number means.

The first number is the bodily injury per person limit. In this case, your insurance would pay up to $25,000 to cover medical, legal, funeral or lost wage costs for the one injured individual in the other vehicle—whether they were the driver or a passenger.

But what if multiple people got injured? That’s a lot of money for the insurance company to pay out. So, insurers made the bodily injury per accident limit—which is the second number in your policy.

In our example, the bodily injury per accident limit is $50,000. That means the insurance company will pay for injuries to the other driver and their passengers up to $50,000. After that, you’re responsible for all costs.  

The third number is the property damage per accident limit. This is how much the insurance company will pay to repair or replace the other person’s vehicle or other property you damaged. With a 25/50/15 policy, the insurance company would pay up to $15,000 for repairs.

Single Coverage Limits

Single coverage limits are easier to understand because there’s only a single number involved. A single coverage limit of $500,000 means that’s all the insurance company will pay for injuries or damage.

The downside to split coverage limits is that you can’t use leftover money from one category to help pay for the other. Here’s what we mean:

Hassana carries a 25/50/15 policy. She causes an accident that results in $2,000 worth of medical bills and $20,000 in property damage. Her bodily injury liability will cover all the medical bills. But because her property damage limit is $15,000, she still has to pay $5,000 to fix the other driver’s car.

That’s why some drivers choose a single coverage limit (also called a combined coverage limit) policy. Instead of having three separate coverage limits of $25,000, $50,000 and $15,000, their policy would just have one coverage limit—let’s say $65,000. The insurance company would use that $65,000 to cover any liability costs for the wreck—no matter if they were injuries or property damage.

Single coverage limits give you more flexibility when paying for damages, so if they’re available in your state it can be worth asking your insurance agent about the costs of switching to this type of auto liability policy.

Do You Need Liability Insurance?

We’ve nailed down the answer to What does liability insurance cover? So now you might be wondering if you need it.

Quick quiz:

1. Do you own and drive a car?

If you answered yes to our scientific quiz, you need liability car insurance—no buts about it! And if the fear of financial ruin from lawsuits (not to mention the desire to make everything right should you hit someone with your car!) isn’t enough to make you want to get it, then the fact that it’s the law should. Except for New Hampshire and parts of Alaska (because they’re just weird), liability car insurance is required by every state.

In fact, if you own a car with a rebuilt (or R) title, it may be the only car insurance you can get. And also good to note: There are major penalties for driving without liability insurance. If you live in a state where liability auto insurance is required, you’ll also need the same amount on any RVs or motorcycles you own.

If you’re not sure you have enough liability or you need to get a policy pronto, we know some insurance experts who can help. RamseyTrusted insurance pros are independent agents who can shop around and find you the best rate on the right coverage for you.

Zachary R. didn’t believe our pros could save him money in Michigan—a state known for high auto insurance rates—but they did! He was paying $180 a month for insurance, so he went to our site and entered his info.

“Two hours later I got a call from an insurance agent and he took my information to check around,” Zachary said on the Ramsey Baby Steps Facebook Community page. “About an hour ago, he called and quoted me at $117 a month. Guess who’s saving money, starting now?”