Last updated on March 1, 2003
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AUTO INSURANCE
Liability Coverage: In Case You're at Fault
Liability coverage protects you if you (or another person driving your car with your
permission) injure or kill someone or damage property. Assume an accident for which you are clearly responsible: You run a red light, strike
another car and injure the driver. Your liability coverage obliges the company to defend
you -- in court, if necessary -- and pay claims to the other driver for vehicle damage and
bodily injuries, including medical and hospital costs, rehabilitation, nursing care, and
possibly lost income and money for pain and suffering. (The liability section of your
policy does not compensate you for damage to your own car or any injuries to you. They are
covered by other parts of the policy.)
Now assume that you're involved in a collision at an intersection with no
witnesses or evidence to pin the blame on either driver. Again, under your liability
coverage, your insurer agrees to defend you against most proceedings the other driver may
take against you.
The company limits its liability payments to the policy limits, or the amount of
coverage you select. You can be held personally accountable for any excess.
Liability coverage is mandatory in nearly all states (the others have
financial-responsibility laws that can be met by purchasing this coverage). But state
requirements are modest -- typically $20,000 to $30,000 for bodily injury suffered by one
person in an accident, $50,000 for all people hurt in the same accident, and up to $25,000
for property damage resulting from that accident.
Alaska, which has the toughest requirements, dictates $50,000 of coverage for one
person's injuries, $110,000 for all those hurt in the same accident, and $25,000 for
property damage.
How much coverage do you have?
Insurance companies use a shorthand to describe their liability coverage, and even if
you understand the lingo, it might not be immediately apparent how much coverage you
carry.
For instance, a policy might be listed as 50/110/25. The first figure refers to the
coverage (in thousands of dollars) for injury to one person, the second number is the
limit for injuries to all people in the same accident, and the third figure is the
coverage for property damage in the same accident.
Some companies issue single-limit policies, with one liability limit that applies to
total payments arising from the same accident, regardless of the number of people injured
or the amount of property damaged. In Canada, single-limit policies are the rule.
If the company incurs legal expenses to defend you against a lawsuit, those expenses
don't count toward the liability limits. Nor do payments you receive under the policy
for bail bonds and earnings lost while attending hearings and trials at the company's
request.
However, many policies free the company from any obligation to continue your legal
defense for sums above the amount it has to pay.
How much coverage you need
You should carry as much liability coverage as you can comfortably afford because
damage claims today are sometimes settled for millions.
State minimums don't come close to covering the cost of a serious accident. You
should carry bodily-injury coverage of at least $100,000 per person, and $300,000 per
accident, and property-damage coverage of $50,000, or a minimum of $300,000 on a
single-limit policy.
Raising your limits isn't expensive: $300,000 in coverage costs 20% more than
$100,000, on average. The more coverage you buy, the less you have to pay per $1,000 of
coverage.
Ask your agent for precise figures. You may even want to investigate raising your
liability coverage further through an umbrella policy.
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IN THIS TUTORIAL
Liability: In Case You're at Fault
