There are several types of insurance policies that offer liability protection. These include auto insurance liability, homeowners insurance or renters insurance liability, the extended liability insurance coverage provided by an umbrella policy, as well as business liability coverage. While all these types of policies offer liability coverage, liability comes in different forms and the liability coverage for each type of policy is unique.

Today, we discuss Auto Liability Insurance Coverage, which provides two types of liability coverage: property damage liability and bodily injury liability.

What Does Liability Insurance Cover and Why is it Important Coverage?

Auto liability coverage is the core of what’s commonly referred to as state-minimum coverage. Auto insurance is required by law in every state and every state requires auto liability insurance coverage as part of that basic coverage policy as well as requiring liability coverage on full coverage auto insurance policies.

Auto liability insurance covers financial damages to another person due to an auto accident when you are at fault.

Different minimum coverage amounts are required for auto liability insurance depending upon the laws of each state, so State minimum Auto Insurance doesn’t mean the same thing everywhere.

Auto liability insurance provides two types of liability coverage. These are usually broken out into different amounts on your policy and you’re often to able to adjust each amount independently to meet your insurance needs and budget. Before making insurance decisions based on cost alone, it’s best to understand what is covered by each type of Auto liability insurance coverage. If you are involved in an at-fault accident, carrying liability insurance coverage amounts that are too low can cost much more than the increase in premium for choosing a higher level of liability coverage.

Property Damage Liability Coverage

Your auto liability insurance provides coverage for property damage liability. If you are at fault in an accident and someone else’s property is damaged, your property damage liability provides coverage up to the coverage amounts you chose for your policy. In this case, property simply means the other person’s stuff. This can include cars, mailboxes, telephone poles, buildings or houses, or anything else that insured motorists sometimes bump into during accidents.

The minimum state required amount for property damage liability coverage in some states is as low as $5,000. While a lower amount of property damage liability coverage helps to keep the premium lower as well, if you were involved in an at-fault accident, your financial exposure can be much higher than the state minimum coverage amount of $5,000. When you’re stopped at a traffic light, take a look to the left and right. You’ll see more than $5,000 worth of cars waiting at the light with you. Anyone can become distracted or lose control during inclement weather while driving and cause an accident requiring property damage liability coverage. Be sure to ask your insurance agent 4 quotes with different levels of property damage liability coverage. You might find that a higher level of coverage is more affordable than you expected.

Bodily Injury Liability Coverage

Your Auto Insurance liability coverage also includes coverage for bodily injury liability. Much as its name suggests, bodily injury liability coverage is insurance coverage to help you pay for costs associated with someone’s injuries if you are at fault in an auto accident.

While the coverage is called bodily injury liability, this important coverage covers more than just bodily injury, also providing coverage for pain and suffering, and even lost wages for the person or persons injured. As you can imagine, if you were involved in an at-fault accident, the combination of these three types of liability that fall under bodily injury liability can create a financial obligation that adds up quickly.

In some states, your bodily injury liability coverage is split into two parts and your total liability coverage may be displayed as three parts.

For example:


In the above example, which are not uncommon levels of liability coverage for a homeowner, this policy offers $100,000 in bodily injury liability coverage per person, $300,000 in bodily injury liability coverage for the entire accident, and $100,000 in property damage liability coverage. The last number in the series is for property damage liability coverage.

With these levels of coverage on your insurance policy, your insurance company will pay up to $300,000 in bodily injury liability for the whole accident, but coverage for each person is capped at $100,000. This policy also offers $100,000 of property damage protection. These chosen limits are all higher than the state minimum required levels of coverage and help protect the assets and future earnings of the insured.

By contrast, here are the state minimum liability coverage limits for a standard auto insurance policy in New Jersey:


This state-minimum auto insurance policy provides $15,000 in bodily injury liability per person, $30,000 in bodily injury liability for the entire accident, and $5,000 in property damage liability coverage. With all other things equal, the premium for the state minimum auto insurance policy will be lower than for the previous example, but the coverage limits can be easily exceeded creating financial exposure, risking your assets and future earnings.

There are some very important considerations for liability insurance coverage and this section of your auto insurance policy is among the most important to review carefully. Auto liability that results in lawsuits can easily exceed the state-mandated minimum limits. Additionally amounts awarded for bodily injury or property damage, or a combination of the two, are not based on your income or assets. These court-awarded amounts are based on actual monetary loss and pain and suffering. If your auto liability insurance coverage is insufficient to cover the liability judgment, you are responsible for any amounts in excess of the coverage amounts you chose for your policy.

If you don’t have the money to cover your liability obligation at the time, your assets and future earnings are at risk. In some cases, people who have been involved an at-fault accidents and had insufficient auto liability insurance coverage for the damage caused have found their future wages garnished by the court.

Accidents are called accidents because we didn’t intend to have one that day. Regardless of the reason and despite being careful, at-fault accidents can happen to any of us or to someone else covered on our policy.

Some insurance companies also use prior liability coverage limits as a rating factor when quoting new customers. For example, if you were carrying state-minimum liability insurance coverage on your existing policy, your quote would be more expensive with these insurers than if you had been carrying liability coverage well above the state minimum. Also, when insurance companies raise rates, the rate increases aren’t always a flat percentage for everyone. People with lower liability coverage limits on their auto insurance policy may see greater increases as a percentage compared to someone with higher liability insurance coverage limits.

Your bodily injury liability coverage does not cover the costs of your own injuries, pain and suffering, or lost wages. Coverage for your injuries or lost wages will be structured differently depending on your state and is governed by a part of your policy called personal injury protection. In some states, you can adjust the amount of personal injury protection on your auto insurance policy or may have the option to make your health insurance provider the primary insurance provider for your injuries in the event of an automobile accident. Bodily injury liability coverage is intended to provide coverage for people who are not on your automobile policy.

Review your auto policy with an agent or broker.

If you haven’t done so recently, call or visit your insurance agent to inquire about your liability coverage. If you choose to raise your liability insurance coverage, your agent may be able to suggest some other eligible discounts that can help offset the cost of increased auto Insurance liability coverage. In many cases, once you pass a certain threshold of coverage for your liability insurance, the difference in cost for higher coverage limits is nearly negligible, often allowing you to double or triple your liability coverage limits for a relatively small monthly investment in premium.

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