What is auto liability insurance?

Car liability insurance can help protect your finances if you are found at fault in an accident by paying other people and property damages, as well as legal fees for yourself.

Most states legally require you to carry some type of liability coverage, and almost all auto insurers offer liability insurance since it’s the foundation coverage for auto insurance. If you’re shopping for auto insurance coverage, CNBC Select named the best auto insurance companies for 2023. Our top picks include Geico for best comprehensive coverage and State Farm as top insurance companies for customer satisfaction.

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

Insurance companies typically divide liability coverage into two components: liability for bodily injury and liability for property damage. Here’s what each term means:

• Liability for bodily injury: This coverage can help cover another person’s medical expenses, including doctor visits and emergency services. It can also compensate them for their lost salaries and income as a result of their injuries. Liability insurance coverage can also help you pay any legal fees that you may face as a result of an accident caused by you. There is generally a limit of coverage per injured person and maximum total per accident in an auto insurance policy.
• Liability for property damage: Covers damage to other people’s property, such as a mailbox or porch. He can also pay for damages to someone else’s car.

It should be noted that liability coverage does not cover damage to your vehicle or personal injury. To cover damage to your property, you will need comprehensive and/or collision coverage.

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

Most states legally require that you have auto liability insurance. However, the amount of liability coverage mandated by your state can vary. Check your state auto insurance coverage laws to make sure you have enough.

It should also be noted that you may be liable for costs that exceed your policy limits if you are at fault in an accident. You may want to consider obtaining liability coverage greater than or equal to your net worth to ensure that you do not lose assets if you are sued.

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

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

• Collision coverage: If you find yourself in a collision with an object or other vehicle when you are at fault, collision coverage may help you repair your vehicle.
• Comprehensive coverage: If your car is damaged due to a natural disaster, vandalism or even a fallen tree, comprehensive coverage can help you repair or replace your car. Without this coverage, you could pay for the damages yourself.
• gap coverage: If you have a car loan or lease and your car is stolen or collected entirely, gap coverage can help cover the difference between what you still owe on the loan or lease and the depreciated value of the car.
• Personal Injury Protection (PIP): This helps pay for your medical expenses and wages lost due to an accident no matter who is at fault.

Minimum amounts vary based on the state in which you live. But the actual amount you might need is likely to be higher, since experts recommend that you have liability coverage equal to your net worth.

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

Liability insurance is an important part of a comprehensive car insurance coverage that helps protect you financially when you are at fault in an accident. But it won’t cover many common scenarios, such as injury to an animal or damage from a fallen tree branch. Do your research and talk to a trusted insurance expert to make sure you get the coverage you need.