Liability Car Insurance

The numbers in liability insurance mean that an insurer will only pay for bodily injury or property damage liability claims up to a certain dollar amount. These policy limits are typically expressed as three numbers that each represent an amount in thousands of dollars, like 25/50/25. With a 25/50/25 policy, the insurance company will pay up to $25,000 per person for bodily injury claims and up to $50,000 in bodily injury claims per accident. Additionally, it will cover up to $25,000 in property damage for each accident.

Every liability car insurance policy includes limits that are expressed with these numbers, and the order and notation are always the same. Once you know what the numbers in liability insurance mean, you can better understand how your own policy works. 

What the Numbers in Liability Insurance Mean

1^st Number: The maximum amount of bodily injury liability coverage per person.

2^nd Number: The maximum amount of bodily injury liability coverage per accident.

3^rd Number: The maximum amount of property damage liability coverage per accident.

Examples of Liability Insurance Limits

It's important to remember that these coverage limits only apply to other people's expenses after an accident that you cause. If the cost of a bodily injury or property damage liability claim exceeds your policy limits, you can be left personally responsible for covering the remaining amount. As a result, you should purchase as much liability insurance as you can afford in order to protect your finances in case you cause a severe accident.

To learn more, check out WalletHub's guide to liability insurance.

Liability-only insurance is car insurance that pays for other people's injuries or damage to other people's property, but not the policyholder's injuries or property. The term “liability-only car insurance” is used to distinguish policies with basic coverage from those with collision insurance and comprehensive coverage.

Liability insurance is the only type of auto insurance that is mandatory in almost every state. It's split into two main categories of coverage: bodily injury liability and property damage liability.

What Liability-only Insurance Covers

• Medical expenses
• Legal fees
• Loss of income
• Pain and suffering
• Funeral costs
• Repairs to/replacement of cars
• Repairs to/replacement of items in the car during an accident
• Repairs to/replacement of other property, like a mailbox, fence, or house

Liability-only insurance is the least expensive car insurance since it provides such minimal coverage. However, driving with only liability insurance can lead to expensive bills for your own property or injuries.

Liability-only car insurance is not always an option, either. Some states require drivers to carry other types of insurance as well, like uninsured or underinsured motorist coverage (UM/UIM) and Personal Injury Protection (PIP). And if your car is leased or financed, your lender will likely require you to purchase collision and comprehensive insurance.

For tips on whether liability-only insurance is enough for your situation, check out WalletHub's guide on how much car insurance to get.

Liability car insurance costs an average of $716 per year nationally. The exact cost of a liability auto insurance policy varies based on several factors, including the state, insurance company, driver's record, and amount of coverage purchased.

Liability Car Insurance Cost by Company

• Geico: $506 per year
• USAA: $633 per year
• Progressive: $649 per year
• Travelers: $691 per year
• Liberty Mutual: $879 per year
• State Farm: $919 per year
• Allstate: $954 per year
• Nationwide: $1,005 per year
• Farmers: $1,073 per year

These sample quotes reflect minimum coverage requirements in California. The best companies should generally stay the same from state to state, though.

On average, liability car insurance costs 51% less per year than full coverage insurance, which usually includes liability along with collision and comprehensive coverage. Liability car insurance only covers expenses incurred by other people in accidents where the policyholder is at fault. Nearly every state requires drivers to carry it, though most states require other types of coverage as well.

Liability Car Insurance Costs by Coverage Level

How much liability car insurance you purchase will be the main factor that influences your premium. Each state has its own coverage requirements, which can vary widely. For example, Alaska requires drivers to purchase $100,000 in bodily injury liability coverage per accident, while Arizona only requires $30,000.

The difference between comprehensive and liability insurance is that comprehensive covers your car when it's damaged by something other than a collision, while liability coverage pays for other people's property damage and injuries when you cause an accident. Liability insurance also is required by law, unlike comprehensive insurance.

Comprehensive vs. Liability Insurance

When to Purchase Liability or Comprehensive Insurance

Even if your lender or lessor doesn't require you to get comprehensive insurance, you should still consider it if the cost is less than 10% of your car's value. Comprehensive insurance applies in situations that you have no control over, like your car being stolen, so it's a good investment if you want to protect your vehicle from unexpected damage. To that end, it's important to consider risk factors in your area, such as crime rates and the frequency of natural disasters, when deciding on comprehensive coverage.

If you're thinking about purchasing liability-only insurance, you need to consider your state's insurance laws and your financial situation. Although it may be less expensive initially, a liability-only policy will leave you responsible for your own medical bills or vehicle repair costs after an accident. As a result, you should only skip other types of coverage if you can pay out of pocket for expenses resulting from a wreck. And if your state requires you to have other types of insurance, like personal injury protection or uninsured/underinsured motorist coverage, then you do not have the option to purchase liability-only insurance at all.

You should have liability-only insurance if the annual cost of full coverage exceeds 10% of your car's value. At that point, the extra coverage might not be worth the added cost of paying for more than liability-only insurance. But this is just a general rule of thumb, and the decision to switch to liability-only insurance depends on state coverage requirements and each driver's financial situation.

When Liability-Only Insurance Is Worth It

The main advantage of liability-only insurance is that you'll save on your premium. Since liability insurance offers minimal protection for the policyholder, it is less expensive than full coverage insurance.

However, if your car is damaged by an accident that you cause or another damage-causing event, then you'll have to pay for the repairs out of pocket. If you have the financial means to pay for repairing or replacing your car, and your state doesn't require you to have any other types of insurance, then you could take the risk of switching to liability-only insurance. 

Liability-Only Insurance & State Coverage Requirements

Liability only insurance pays for other people's property damage and injuries resulting from accidents that you cause. Almost every state requires that drivers carry a certain amount of liability insurance.

Some states also require drivers to carry other types of insurance, including uninsured/underinsured motorist coverage and personal injury protection (PIP). If your state requires you to have multiple types of coverage, then you cannot legally drive with liability-only insurance.

Liability-Only Insurance vs. Full Coverage

If your state allows it, then you'll need to decide whether to purchase liability-only insurance or full coverage. Full coverage insurance generally refers to a policy that includes both collision and comprehensive coverage. Collision insurance covers damage to your vehicle after an accident. Comprehensive coverage, on the other hand, pays to repair or replace your car if it's damaged by something other than an accident, like vandalism or a natural disaster.

If your car is leased or financed, you will likely be required to carry full coverage insurance. Even if your car is paid off, you shouldn't purchase liability-only insurance if your vehicle is still worth a lot or you're not in the financial position to pay to repair or replace it. Liability-only insurance could also be risky if you live a high-traffic area where your vehicle is more likely to be damaged.

The other driver's liability insurance covers your car if someone hits you. Your own liability insurance will never cover damage to your car, since liability insurance only pays for damage that the policyholder causes to others and their property.

Liability car insurance is required in almost every state, and it comes in two forms: bodily injury liability and property damage liability. Bodily injury coverage pays for others' medical expenses, while property damage coverage pays to repair or replace property like cars, mailboxes, and fences.

If the driver who hits you is uninsured or unidentified, you can file a claim with your uninsured motorist or collision coverage. If you don't have these coverage types and cannot receive a payout from the at-fault driver, you will need to pay out of pocket for repairs.

For more information, check out WalletHub's complete guide to liability car insurance.

Third-party liability insurance is insurance that pays when the policyholder injures another person or causes damage to another person's property. In car insurance, third-party liability insurance is required in almost every state, and it only applies when the policyholder causes an accident. Third-party liability insurance does not pay for the policyholder's own injuries or property damage.

The Parties in Third-Party Liability Insurance

In third-party liability insurance, the first party is the policyholder and the second party is the insurance company. The third party is anyone else who becomes involved. Since liability means legal responsibility, third-party liability refers to the policyholder's legal responsibility to someone else.

For example, say that Driver A accidentally rear-ends Driver B at a stop-light, causing minor damage to both cars' bumpers. Driver B can file a claim with Driver A's third-party liability coverage to pay for the damage. However, Driver A cannot file a claim with their own third-party insurance, since they are the first-party in this scenario. Instead, Driver A would need to have collision insurance for the damage to their own car to be covered.

Types of Third-Party Liability Car Insurance

Third-party liability car insurance incorporates two subsections: bodily injury and property damage liability. In addition, car insurance policies usually include three separate payout limits to cover different aspects of third-party liability. For instance, a policy written as 25/50/25 refers to limits of $25,000 for bodily injury claims per person, $50,000 for bodily injury claims per accident, and $25,000 for property damage claims.

Third-party liability car insurance is a term most frequently used outside the United States. In the U.S., insurance companies will usually just call it liability insurance instead.

If your car is totaled and you only have liability insurance, you will have to pay to replace the vehicle yourself or file a claim with the other driver's insurance company. Liability coverage alone does not protect your car in any way, just injuries and damage you may cause to others. You need to have collision, comprehensive, or new car replacement coverage if you want your insurance company to pay to replace a totaled car. However, if your vehicle is damaged or totaled in an accident that isn't your fault, you should make a claim on the at-fault party's property damage liability policy to get your car repaired or replaced.

Only Having Liability Insurance Will Not Cover:

• Damage to your vehicle from an accident.
• Damage to your vehicle from fire, hail, flooding, fallen trees/limbs, or animal strikes.
• Injuries you or your passengers incur.
• Theft or vandalism of your vehicle.

On the other hand, collision coverage would help if you cause a run-in with another vehicle or object that totals your car. Comprehensive coverage would apply to damage caused by a fire, storm, or animal encounter, as well as if your car is stolen. Finally, new car replacement coverage would let you recover the full value of a newly purchased vehicle that gets totaled.

You need enough liability insurance to cover the full value of your assets. Your bodily injury liability coverage should be as much as your net worth, while your property damage liability insurance can be slightly lower since property damage claims are usually less expensive. Purchasing enough liability insurance to cover the value of your assets protects you from financial ruin if you cause a serious car accident.

When to Carry Only the Minimum Liability Coverage

Although almost every state requires drivers to carry liability insurance, the minimum coverage is not always enough to cover the cost of an accident. It's always best to carry as much liability coverage as you can afford, especially if you have a high net worth.

If you don't have many assets or think the risk is worth it, you might be comfortable with carrying only the minimum coverage. But no matter what, make sure you're carrying enough insurance to comply with state law and avoid paying fines for driving uninsured.

Liability Limits on Auto Insurance

Liability limits on auto insurance are the maximum amount that your insurance company will pay for injuries and property damage in accidents that you cause. Liability limits are typically written as three numbers divided by slashes.

For example, Arizona's liability coverage requirements are 50/30/10. That means drivers need to carry $50,000 in bodily injury liability coverage per person, $30,000 in bodily injury liability coverage per accident, and $10,000 in property damage liability coverage overall.

Why You Need More Liability Insurance Than the State Minimum

Your insurance company will never pay for anything beyond the limits of your policy. Using the Arizona example, if you cause an accident that leads to $70,000 in medical bills for the other driver, you will have to pay for $40,000 if you are only carrying the minimum insurance required. And if you can't afford to pay the full amount, the other driver can sue, and you can have your assets seized or wages garnished to cover the remainder.

In Florida, you need $10,000 in property damage liability insurance to drive legally, as well as $10,000 in personal injury protection (PIP). Unlike most other states, Florida does not require every driver to carry bodily injury liability insurance.

Even though Florida's no-fault system means that drivers file injury claims with their own policy, the at-fault driver can be sued if they cause an accident that results in significant and permanent loss of an important bodily function, permanent injury, significant scarring or disfigurement, or death. As a result, it's a good idea to purchase bodily injury liability insurance, anyway, since it can help cover legal fees and other expenses if you cause a serious accident. And no matter what, you should be sure to fulfill the minimum Florida car insurance requirements to avoid facing consequences for driving without insurance.

Finally, drivers should also consider purchasing other types of car insurance in order to better protect themselves, given that liability insurance does not provide any coverage for the policyholder's own injuries or property. For instance, collision insurance covers damage to the policyholder's car regardless of fault. And comprehensive insurance pays if the policyholder's vehicle is damaged by something besides an accident, like a natural disaster or vandalism.