How liability insurance works and why you need it

How liability insurance works and why you need it

August 25, 2016
Liability Insurance
Source: Shutterstock

Auto insurance is mandatory if you want to drive your car in the United States. But did you know there’s more than one type of auto insurance? Each one offers different coverage, for different scenarios. If you want to be protected from the risks of liabilities imposed by lawsuits and similar claims, liability insurance is the one for you.

What is liability insurance and how it works

Liability insurance covers injuries or damage to other people or property if you’re at fault for the accident. It features two components which are always included together. These are bodily injury (BI) coverage and property damage (PD) coverage.

The BI portion is useful when you cause an accident in which another person is injured or even killed. BI coverage will pay for hospital and medical bills, rehabilitation, long-term nursing care, lost earnings, funeral expenses or other expenses, up to the limit selected by the purchaser.

Meanwhile, PD coverage deals with the damages to another person’s property. It will cover the expense to repair or replace damaged parts of other vehicles, houses or other types of property, up to the selected limits.

In case the other party involved in the accident decides to sue you, liability insurance will also pay for your legal defense.

Most states have a minimum requirement for the amount of liability insurance coverage that drivers must have. But it’s always better to get liability insurance that exceeds those minimum requirements, especially if you can afford it. It will help you in case any claims exceed your coverage’s upper limit.

Liability insurance limits

When you get liability insurance, you also select limits. These determine the maximum amount your insurer will pay if you need to use the coverage. They come as either split limits or as a combined single limit.

Split limit is the most commonly used form of liability. It includes three areas:

  • Bodily injury per person;
  • Bodily injury per accident;
  • Property damage coverage.

Combined single limit liability insurance is a set number that the insurance company will pay in the event of an accident. It includes both bodily injury and property damage insurance. In this case, there is no specific limit per person. A total maximum will instead cover all injuries and damage.

Thomas Hookton is a finance journalist, history buff and science fiction connoisseur. Hit him up via email.

Around the web

Join the Conversation

Leave a Reply