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How Much Liability Insurance Do You Need?

How Much Liability Insurance Do You Need?

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States set the minimum amounts of liability insurance coverage that drivers should have, but it is highly recommended that a person purchases more than the minimum coverage. Healthcare costs and vehicle repair costs can add up quickly after an accident. If a person’s coverage is not enough, he or she may be required to pay large amounts of money out of pocket.

What Is Liability Insurance?

Liability insurance for a driver is a type of auto insurance that covers the injury or damage that the driver causes in a car accident. The insurer pays for the injuries and damages up to a person’s coverage limits. The two major components of liability insurance are bodily injury and property damage.

Bodily Injury Liability

Also referred to as BI, this coverage generally covers the costs associated with other parties’ injuries, which were sustained in an accident that the policyholder caused. The costs covered include medical expenses, lost wages if an injured person is unable to work while recovering, the recovery treatments, and pain and suffering. In the case of a fatal accident, it can cover the funeral costs.

Property Damage Liability

This coverage, also abbreviated PD, covers the costs of damage to the property of others as well as the loss of use of that property resulting from an accident caused by the policyholder. Some of the things it can pay for include:

  • The other driver’s vehicle repair
  • Repair to a home, business, or building that a person crashed through
  • Replacement of structures like fences and mailboxes that were hit
  • Lost business revenue

Besides property damage and injuries, liability car insurance can also cover legal expenses if a policyholder is sued after a crash. It is worth mentioning that liability insurance does not pay for a policyholder’s own medical expenses or vehicle repairs. For that reason, a person should consider purchasing other types of auto insurance coverage, such as collision, comprehensive, roadside assistance, and uninsured motorist coverage.

Liability Insurance Limits

Liability coverage pays up to the maximum amount specified in a person’s policy. The three main liability limits that most auto insurance policies have are:

  • Bodily injury limit per person: It is the maximum amount that an insurance company will pay toward another person’s medical expenses if a policyholder is involved in an accident and is at fault.
  • Bodily injury liability limit per accident: It is the maximum amount that the insurer pays for all the injuries sustained in the accident, excluding the policyholder’s own injuries. It comes into effect when there are multiple people injured in an accident. If a person has a $50,000 bodily injury limit per accident, that is the maximum amount the policy pays toward the injured individuals’ medical expenses, regardless of the total number of people injured in that accident.
  • Property damage limit per accident: It is the maximum amount an insurance company pays for the property damage that a person causes in an accident.

Liability policy limits are usually expressed as a ratio of three numbers. For example, a person who has a bodily injury limit of $100,000 per person and $200,000 per accident and a property damage limit of $50,000 will have a policy noted as 100/200/50.

How Much Liability Insurance Does One Need?

Legally, a person’s liability coverage should meet his or her state’s minimum requirements. The minimum liability coverage requirements can vary by state. Many states require 25/50/25 on a person’s policy, meaning bodily injury limit of $25,000 per person, bodily injury limit of $50,000 per accident, and property damage limit of $25,000.

Going with these minimum coverage requirements can be risky. If someone causes an accident, insurance pays only up to his or her coverage limits. He or she will have to pay for the damages above the limits.

Medical bills and vehicle repairs can be considerably expensive. Purchasing higher limits than the state’s minimum requirements is always advisable to protect a person’s savings and any other financial assets in case he or she causes an accident.


Suppose an individual causes an accident that seriously injures four people. Their medical expenses add up to $100,000. If the bodily injury liability limit of the person is $50,000 per accident, he or she will have to raise the additional $50,000 on his or her own to pay the rest of the four people’s medical bills.

If the damages a person causes exceed his or her limits for property damage and bodily injury, he or she will be personally liable for any excess. The people that he or she injured could sue him or her for that money. If the person cannot pay those bills, that could result in liens against owned assets, having wages garnished, and court fees.

Considering One’s Net Worth

A car accident puts personal assets at risk. Generally, one’s insurance coverage should be enough to offset his or her assets. Therefore, people should consider getting a liability policy that covers their net worth.

Bodily injury claims are usually the most expensive. Therefore, it is best for a person to at least choose coverage that covers his or her net worth for the policy’s middle number. If, say, a person’s assets are worth $180,000, a 100/200/50 policy may be suitable for him or her.

A Driver With Many Assets

For a person with substantial assets, an auto insurance company may not offer high enough liability limits to cover all of his or her assets. The maximum bodily injury limit of many car insurers is $500,000 or less. A person can get more liability protection by purchasing umbrella insurance.

An umbrella insurance policy is a supplemental policy that comes into effect once a person has exhausted his other liability policies. It expands home and auto liability insurance limits beyond a carrier’s normal limits. It usually offers liability coverage of $1 million or more.

Umbrella insurance can be beneficial for a driver with a lot of assets when he or she is involved in a lawsuit resulting from a severe car accident.

What If One Does Not Own a Car?

A person who does not own a car but drives someone else’s sometimes can get liability coverage through non-owner car insurance. This policy will pay out if the person is responsible for property damage or injuries when driving another individual’s car. Non-owner insurance is appropriate if the vehicles that a person typically borrows or rents belong to an individual outside his or her household.

Having more liability insurance helps avoid situations where one has to pay out of pocket after being involved in an accident.

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