How Does Auto Insurance Liability Work?

Liability coverage is one of the most important aspects of your auto insurance policy, and it is included, to some extent, in every auto insurance policy in the U.S. That's because each state has some sort of mandatory liability coverage law in place for its drivers. Without liability coverage, you could be susceptible to lawsuits in an attempt to recover the cost of damages and medical expenses of the other person involved in the collision.

When you purchase auto insurance, your insurer will automatically include state minimum coverage, as per law, but you also have the choice of increasing your coverage amounts above the required amount. Liability consists of three types of coverage - bodily injury per person, bodily injury per accident and property damage. Once you choose your amounts, your insurer will only payout those amounts to individuals who are hurt or experience loss from an accident you cause.

Once a claim is made, bodily injury coverage will usually pay for an injured person's medical bills, time off of work, emergency care and the expenses of a funeral if necessary. Policies usually have coverage caps for each person in a vehicle, but may cap an entire accident's coverage at the sum of maximum coverage available for two people. For example, if you have a bodily injury per person limit of $60,000, your total accident coverage may be capped at $120,000, meaning that if three passengers are injured in an accident, only $120,000 will be available between the three of them. Property damage coverage, on the other hand, will pay to replace or repair the same person's property losses, such as another vehicle, a house, a fence or some other stationary object.

If you are sued because of an accident you caused, you could be on the hook for the amount of a judgment that exceeds your liability coverage limits, which could result in a liquidation of some or all of your assets if you are otherwise unable to pay. Instead of leaving yourself financially vulnerable, purchase the enough liability coverage to reasonably pay for the medical expenses that could result in case of a serious accident.