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Liability insurance helps pay for the costs associated with bodily injuries or property damage that you're found to be legally responsible (or liable) for causing to another person. It doesn't cover the costs of your own injuries or the expenses incurred to your own property.
All states require you to have some sort of financial responsibility coverage in order to drive a vehicle within their boundaries. Some states insist you meet this requirement through auto liability insurance. Others give you the option of bypassing liability insurance if you can provide proof you have enough financial resources to handle the minimum standard set by the state. Depending on your state, you may have to post a bond.
Your liability insurance generally applies to vehicles you own, as well as vehicles you drive with the owner's permission.
Of course, you can buy an auto insurance policy that doesn't include liability protection; you can just have it for collision, comprehensive, uninsured motorist protection, or other forms of coverage.
Still, though, for most drivers, liability insurance is the simplest way to meet any financial responsibility requirements imposed by their state.
If you live in a state that doesn't force you to carry auto liability coverage in order to drive, you might be tempted to try to meet the financial responsibility standards by some other manner.
However, doing so might not be the smartest move.
If you're liable for a serious accident, you may face a lawsuit from the injured party. If the injured party wins, your life savings or your property could be in jeopardy. Even if you or your family are wealthy, the blow from a successful lawsuit could force you to make all sorts of changes to your life. Liability coverage can shield you from most or all of this, especially when it's coupled with an umbrella policy.
Additionally, liability insurance pays your legal defense costs should an injured party sue you.
Liability insurance allows you to handle exorbitant claims or lawsuits in stride. Just make sure you carry an adequate amount of protection; see our bodily injury and property damage articles for more information, or talk to your insurance agent or company.
Being liable for an accident means you're either partly or fully responsible for causing it, depending on how your state's insurance commission defines "liability".
If you're found to be liable, there's a chance your insurance premiums will rise, especially if you've caused other accidents within a short period. Of course, your carrier could also decide just to drop you as a customer, leaving you to find coverage with another provider.
However, most insurance companies offer some sort of "accident forgiveness" policy. While the terms of this practice vary by the provider, it can mean that your insurer will not raise your premium if it's your first or second "chargeable" accident within a certain number of months or years. Or, it may mean your insurer may drop an accident off your record after a specified amount of time has passed (usually resulting in reduced premiums). Usually, the longer you've been a claim-free customer, the more generous your insurer will be.
Once you've been in an accident, notify your insurance carrier or agent immediately. Be sure to provide all the information that's requested, and make copies of everything you send to your company. The exact steps to follow depend on your carrier, but you may be asked to fill out and submit forms, or send a copy of the police report.
While it may be tempting to do so, don't hide or downplay the truth to your insurer. Remember, your insurance company will represent you if the other party files a claim or sues you. And, the only way your provider can fully do its job is if you're cooperative with the information, and tell the full story.
As with many things related to insurance, the term "no-fault" insurance differs depending on where you live.
However, generally this refers to a practice where your insurer will pay you for the losses you incur in an accident, no matter if you were liable for them or not. And, the other party's provider will pay for their costs. In this situations, the insurance companies involved huddle to determine who was at fault, and make their own financial arrangements. No matter what, your insurance company will pay for the damages to yourself and your property.
States that allow no-fault insurance limit the ability to sue over an accident. Again, the restrictions vary by state. However, these limits usually don't apply to property damage, so if you live in a no-fault state, you may want to carry a greater amount of this type of coverage because you can be readily sued. As always with insurance matters, discuss the situation with your agent or provider.
Auto liability insurance is broken down into:
- Bodily injury coverage.
- Property damage.
Each type of coverage comes with a limit on how much of the cost your insurance company will pay. You set this limit by deciding how much you're willing to pay for the coverage. The more you're willing to pay, the bigger the risk your insurer is willing to assume.
Bodily Injury Liability
As the name implies, this covers costs associated with personal injuries. Remember, liability insurance only pertains to the injuries of other people, not your own.
Bodily injury (sometimes referred to as "BI") protection covers all sorts of matters, such as:
- Hospital bills.
- Doctor visits.
- Rehabilitation expenses.
- Long-term nursing care bills.
- Lost earnings due to an accident.
The exact coverage varies by the insurer; please see our bodily injury liability article for more information.
Property Damage Liability
Occasionally called "PD" insurance, this deals with damages you cause to another person's property, such as:
- Street lights.
- Street signs.
- Utility poles.
- Mail boxes.
- Garage doors.
As with bodily injury insurance, the protection given depends on your insurance company; please see our property damage article to learn more.
Property Protection Coverage
While bodily injury and property damage insurance are the two primary types of auto liability insurance, other types of coverages exist, especially for those living in no-fault states.
For instance, Michigan residents must obtain property protection coverage. Also known as limited property damage insurance, this coverage helps pay for damages you incur to fixed or stationary structures, such as parked vehicles, utility poles, or buildings.
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- What To Look For In A Liability Policy
- Tips On Working With A Liability Adjuster
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