How Liability Insurance Works

By: Melanie Radzicki McManus

Liability Auto Insurance Coverage

Of course you're a good driver. We all are, aren't we? I'm sure you've never chatted on your cell phone while driving, or ate, or applied make-up, or texted or simply were distracted. But even driving aces can cause a crash, and that's when liability auto insurance is critical. If you cause an auto accident, whether it's a mere fender-bender or a catastrophic crash, your liability insurance will pay for the damage you caused to the other person's car, plus any property you may have wrecked as your cars were bumping around. It will also pay for any injuries the other person received, along with their lost wages and their pain and suffering. If someone died in the accident, your liability insurance will also cover funeral expenses, plus legal bills if you're sued [sources: Progressive Commercial, Allstate]. All in all, pretty important stuff.

Liability auto insurance is considered so important, it's required in every state except New Hampshire. The amount of coverage required varies by state. Insurance companies usually offer coverage in a three-part package, such as 25/50/25. The first number always refers to the coverage for bodily injuries you caused to one person, in thousands; the second number to bodily injuries you caused to all people in the accident; and the third figure to property damage. So purchasing 25/50/25 coverage means your policy would pay up to $25,000 for one person's injuries, up to $50,000 for everyone's injuries added together and up to $25,000 for any property damage [sources: Progressive Commercial, Reed].


It's wise to purchase as much liability insurance as you can afford, because if you happen to cause a serious auto accident, medical bills in particular can be astronomical and wipe out your savings and assets. Take the 25/50/25 coverage mentioned above. That's considered fairly bare-bones coverage; experts recommend $100,000 and $300,000 for bodily injury coverage for one and all people, respectively [source: Reed]. It's easy to see why. If you slammed into a car carrying a family of five, their combined injuries could easily result in medical bills that far exceed your $50,000 limit, not to mention the costs for lost wages, funerals, pain and suffering, and, of course, the nearly-inevitable lawsuit that would result.