What is liability car insurance?

Liability car insurance can help protect you financially if you are at fault in an accident by paying legal fees for damage to other people and property, as well as yourself.

Most states legally require you to carry some form of liability coverage, and almost all car insurance companies offer liability insurance because it is the basic coverage of car insurance. If you’re shopping for car insurance coverage, CNBC Select picks the best car insurance companies for 2023. Our top picks include Geico for best overall coverage and State Farm as best for customer satisfaction.

Here’s what you need to know about liability car insurance.

Insurance companies generally divide liability coverage into two components: bodily injury liability and property damage liability Here’s what each word means:

• Liability for Bodily Injury: This coverage can help cover medical expenses for the other person, including doctor visits and emergency services. It may also compensate them for lost wages and income as a result of their injury. Liability insurance coverage can also help you pay any legal fees you may face as a result of an accident you cause. Car insurance policies typically have a limit of coverage per injured person and an aggregate maximum per accident.
• Property Damage Liability: Covers damage to others’ property such as mailboxes or porches. It can also pay for damage to another person’s vehicle.

It is worth noting that liability coverage does not cover damage to your own vehicle or your personal injury. To cover your own property damage, you must have comprehensive coverage and/or collision coverage.

When you’re shopping for car insurance, you’ll find that the amount of coverage for each of these is usually written with a slash between each type. For example, a “50/100/25” policy would carry $50,000 worth of bodily injury liability coverage per person, $100,000 worth of bodily injury liability coverage for each accident you’re involved in, and $25,000 worth of property damage coverage per accident.

Most states legally require you to have liability car insurance. However, the amount of liability coverage mandated by your state may vary. Check your state’s laws for car insurance coverage to make sure you have enough.

It is also worth noting that if you are at fault in an accident you may be held responsible for costs beyond your policy limits. You may want to consider liability coverage greater than or equal to your net worth to ensure you don’t lose assets if you’re sued.

In many cases, it may be important to have more coverage than just liability coverage. While other coverages may not be required to be insured in your state, they can help you if you don’t have the funds to buy another car.

Liability insurance only covers damage to other persons and property. Here are four other types of coverage you may want to consider:

• Collision coverage: If you find yourself in a collision with an object or another vehicle when you are at fault, collision coverage can help you repair your vehicle.
• Broadly speaking: If your car is damaged by a natural disaster, vandalism or even a falling tree, comprehensive coverage can help you repair or replace your car. Without this coverage, you may have to pay for the damage yourself.
• Gap Coverage: If you have a car loan or lease and your car is stolen or totaled, gap coverage can help cover what you still owe between your loan or lease and the depreciated value of the car.
• Personal Injury Protection (PIP): It helps pay your medical expenses and lost wages due to an accident, regardless of fault.

The minimum amount varies based on which state you live in. However, the actual amount you may need may be higher, since experts recommend that you have liability coverage equal to the total value.

Your net worth is calculated by adding up all your investments, cash, assets and liabilities such as real estate, loans, debts and mortgages.

Liability insurance is an important part of your overall car insurance coverage that helps protect you financially if you are at fault in an accident. But it won’t cover many common situations, such as hitting an animal or damage from a falling tree branch. Do your research and talk to a trusted insurance expert to make sure you’re getting the coverage you need.