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Liability insurance is a type of auto insurance that covers other people’s expenses resulting from an accident which the insured is responsible for. The expenses include repair costs, medical bills, and funeral costs if the accident was fatal.
Even the best drivers can sometimes make a mistake leading to an accident. As long as you are driving a car, there is always a chance that you may cause an accident. As such, it is a requirement in most states that all drivers have liability insurance.
If you cause an accident and you don’t have liability coverage, you risk losing everything you own if the victims sue you. As such, it is very important to have liability coverage.
Auto liability insurance provides coverage for damage to other people’s property and injuries to other people that result from an at-fault accident. There are two types of liability coverage:
This is used to reimburse accident victims for repair or replacement of belongings that may have been damaged as a result of an accident which the insured caused. For instance, suppose you lose control of your vehicle, collide into an oncoming car then crash into a nearby shop. In that scenario, you have caused damage to the other car and also to the shop. Your liability insurance would be responsible for paying for all repair costs both for the other vehicle and for the shop.
Most accidents result in injuries and in some terrible cases, death. If you cause an accident, your liability insurance will pay for the medical expenses, lost income, funeral expenses, and pain and suffering for the people you injured or killed in that accident.
Liability insurance usually comes with a limit. The limit is the amount up to which the insurance company is willing to cover you. Each state has minimum coverage limits for property damage and bodily injury liability but you may buy additional coverage if you feel the need to.
The limit is usually expressed as a group number, for instance, 15/30/5. In this example, the policy provides:
a) $15000 bodily injuries cover for everyone affected by an accident you caused with a maximum of $30000 in total for everyone injured in the accident.
b) $5000 property damage liability coverage for property destroyed as a direct consequence of an accident which the insured caused.
While calculating your limit, you want it to be high enough that it can protect all your property but not too high that you end up paying too much in premiums. The first thing you need to do is to calculate your net worth. To do this, add up all your assets like your home, savings, cars, stocks, and others then deduct your liabilities like debts. You’ll want the middle number to be higher than your net worth. For instance, if you found your net worth to be $230000, a good policy would have 100/250/100 liability limits.
If you require more coverage, consider getting umbrella insurance which covers excess liability.