New Drivers’ Guide to Liability Coverage

Liability insurance covers what you owe to others. (wikipedia.org)

49 of the 50 states have a direct requirement that every driver carry the minimum liability coverage, as set in their law. Yet one out of seven drivers in the United States is willing to tempt fate by driving without coverage.

But those of us who comply with these laws are in the majority. So it’s important that a driver, especially a new driver, understand the basic concepts behind car insurance. They should know exactly what sorts of coverage their policy includes, and what they will and will not cover.

And we also think it imperative that drivers should know that if they drive and don’t have car insurance and subsequently are caught and cited by the police, the experience could easily cost them more than a basic liability. Many times over, depending upon the laws and fines specified for your state.

That’s not to say that getting off cheaply is always a bad thing, at least if you do so in compliance with insurance requirements or financial responsibility laws in your state. Basic liability coverage is superior to no policy.

It probably comes as no surprise to find out that liability insurance is the most common type of car insurance available, and that’s mostly because it is required by law in just about every state.

Let’s taks a quick look at some of the important things you should know about liability insurance, beyond the mandatory requirement.

Two Different Components of Liability Coverage

Liability insurance was put in place as a societal safety net from the economic impacts of auto accidents. As the name implies, this coverage pays out when another’s property is damaged or someone else is injured in a collision or crash directly due to your actions.

There are two different components to liability policies: Bodily Injury and Property Damage. The former covers the health and medical expenses of those you injure, while the latter covers damage to another driver’s car or other property that you damage.

How Will a Liability Policy Be Denoted?

Since liability has two parts, you might expect it to be denoted in that fashion. But it’s actually expressed in a number series based on the limits of coverage. And despite being in two parts, Bodily Injury is actually show with two limits: payments per individual person, and maximum payment on the policy.

So the limit is displayed such as 30/60/30. In this example, you’d have the following coverage levels:

• Bodily injury per person – $30,000.00
• Bodily injury per accident – $60,000.00
• Property damage – $30,000.00

What this means is that if someone else was injured in an accident your insurance would cover $30,000. If two or more people were injured in the accident, it would pay up to $60,000 total.

How Much Does Liability Cost?

While the exact number is going to vary based on the insurance company you choose as well as the state you live in, generally you will find that liability is the most expensive component of your insurance policy.

It isn’t uncommon for liability coverage to represent 60 percent of the total cost of a policy with full coverage that includes collision and comprehensive with liability.

Collision ranges from 30 to 50 percent of the cost. Comprehensive, on the other hand, is a steal at only 5 to 15 percent of your total insurance premium.

This is why it isn’t uncommon to hear us advocate dropping collision coverage if you are faced with financial pressures that require significant savings. However, this is only prudent if you are driving a car that isn’t that expensive to replace or repair.

Liability Only: No Damage to Your Car Covered

Liability insurance is exactly what it sounds like – it only covers your liability to others. Unless you’re not at fault for a collision, where the other driver would be liable to you, you should only expect it to cover damages you cause to the property of others, or medical costs if you injure others.

And perhaps more important than the actual lack of coverage for your own property, we’d also argue that if you do purchase state minimum coverage, you’re probably underinsured by a considerable amount.

Due to the age of most state minimum coverage requirements (many of which date back to the 1960s and 1970s), they can be extremely out of date and unreflective of today’s economic realities. In many cases, minimum coverage will simply not be enough to protect you.

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