Liability insurance coverage refers to a third-party liability policy. A third-party liability policy “provides coverage for liability of the insured to a ‘third party.’” Liability insurance is based on the ideas of fault, proximate cause, and duty. In property insurance, for example, coverage for various events is based on what is included or excluded in the contract. However, in liability insurance, the insured is covered for his or her own negligence (Montrose Chemical Corp. v. Admiral Ins. Co.). In other words, liability insurance compensates a third party for damage caused by the negligence of the insured. For example, one may have liability insurance for one’s car, meaning that if he/she gets into an automobile accident and injures someone, the liability insurance will compensate the injured person.
[Last updated in July of 2020 by the Wex Definitions Team]
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Liability car insurance, also known as liability coverage, helps pay for the costs of the other driver’s property and bodily injuries if you are “at fault” in an accident. Your insurer will pay for the property damage and injuries up to the covered limit.
Liability car insurance falls into two categories. Each covers different items.
Pays for costs associated to injuries for which you are legally liable. This means that your actions caused injury to another person and you were found legally responsible for those injuries.
What type of bills does BI coverage pay?
- Medical expenses
- Pain and suffering
- Lost wages
Pays for damage done to another person’s or company’s property, as well as for the loss of use of that property. This means that your actions caused damage to property (a car, a house, a tree, etc.) and you were found legally responsible for those damages.
What type of bills does PD coverage pay?
- Vehicle repair
- Repair to the living room wall you crashed through
- Removal of the knocked over tree
- Defense and court costs if you are sued
There’s another type of liability coverage that can protect your assets (and your financial future) in the event you’re in an accident: a personal liability umbrella policy.
Umbrella policies provide coverage above and beyond what your car liability insurance covers, especially if you’re the target of a lawsuit after an accident involving your car, home or boat.
Learn more about umbrella policies offered by State Farm by contacting an agent.
The minimum amount of liability coverage you’re legally required to carry varies by state, and the amount your premium may rise if you purchase additional liability insurance also will vary by state.
The premiums increase usually is smaller than you’d expect. And keep this in mind: your monthly premium with additional liability coverage is almost certain to cost you less than what you’d pay if you’re in an accident and not properly covered.
If you decide not to purchase additional liability coverage, you should ask yourself this: “How much can I afford to pay out of my own pocket if I'm responsible for an accident?"
Minor "fender-benders" are often fully covered by the liability coverage minimums set by your state. But it only takes one accident to disrupt life as you know it.
Why not further protect your family and assets by choosing higher liability coverage, at rates you can afford?
Disclaimer
This document contains only a general description of coverages and is not a statement of contract. All coverages are subject to all policy provisions and applicable endorsements, and may vary by state. For further information, please see a State Farm agent.
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You’ll usually see your liability coverage broken into three separate numbers that indicate your liability limits for bodily injury and property damage (the minimum limits required vary by state). For example, the minimum limits for auto liability in Illinois are $25,000/$50,000/$20,000. Here’s what those numbers mean:
- Bodily injury per person: $25,000 is the maximum amount your insurance company will pay out for injuries per person.
- Bodily injury per accident: $50,000 is the maximum amount your insurer will pay out for injuries per accident.
- Property damage per accident: $20,000 is the maximum amount your insurer will pay out for damage to someone else’s vehicle or property per accident.
Consider the two scenarios below, assuming your liability limits are $25,000 per person, $50,000 per accident, and $20,000 for property damage.
If you’re at fault in an accident, your liability limits pay for damages and injuries you cause to others, including:
- Damage to other cars
- Damage to property (mailbox, house, street sign, guardrail, etc.)
- Injuries to other drivers/passengers/pedestrians
- Lawsuits and attorney/court fees
Do I need auto liability insurance?
Yes, auto liability coverage is required in nearly every state. However, the amount of coverage you’re required to have varies widely between states.
How much auto liability insurance do I need?
If you’re liable in an accident, a court judgment could cost you your life savings, so you’ll want to make sure you’re well-covered. Add up your assets, including bank, brokerage, and retirement accounts, as well as equity in your home and other property. Then, subtract your debts to get your total net worth. Consider choosing at least that amount for bodily injury liability, as your total net worth can grow. Keep in mind, bodily injury typically results in more expensive claims than property damage.
Note that the cost of bodily injury liability will vary by coverage amount and per driver, and the difference between the state minimum price and $100,000 is often minimal. Get more tips on figuring out how much car insurance you need. Our car insurance estimator can also give you an idea of what coverage level is right for you.
If you have a high net worth, it might be worth taking out an auto policy with a CSL for both bodily injury and property damage. CSL amounts usually range between $300,000 and $500,000. Premiums for a CSL policy are higher, but your coverage limit can be divided in whichever way necessary to satisfy a claim against you.
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Please note: The above is meant as general information to help you understand the different aspects of insurance. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features on this page are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.