What Is Liability Insurance Anyway?

It's all over the Net and television. Ad after ad shouting at drivers that they have to have liability car insurance. They rightly affirm that it's the law, and scare drivers into choosing their liability coverage. Alright, Mr. Insurance Company Adman, fine, we need it! But what is liability insurance anyway?

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As usual, there are fancy industry words that the average person is oblivious to unless they are involved with lawyers and the lawyers who lawyer. So, let us make it really clear for you: Liability insurance is what covers you financially when you are responsible for an accident and the damages associated with it. Clear enough?

But bear this in mind: It doesn't cover you or your car.

The laws requiring car liability insurance be carried by every driver is meant to protect not you but every other driver out there that you might hit with your car. So, think about that for a second: If all you have is the legal minimum - liability insurance on your car - then the only accident that you are covered for, in a way, is one caused by someone else. Yes, if you cause the accident then the insurance company will pay the other party in the accident that you caused. So, you are not out of pocket for those damages (unless the level of coverage is exceeded by the medical and property damages you've caused). BUT, you are totally on the hook for your own injuries and the damage to your car, which could be extensive. (Ever checked into the cost of repairing even a deployed airbag? Whew!)

2 Sides of Auto Liability Insurance

But that being said, car liability insurance isn't just one thing. There are actually two sides to these policies:

• Bodily injury

  This aspect of liability is just what it means: It covers the injuries suffered by those in the other car or cars, should you cause an accident. It means medical bills, lost wages, the phrase known by everyone who watches Judge Judy, "pain and suffering." Up to the level of coverage you've paid for with your insurance policy, these things will be paid for. But here's the kicker: If the costs of bodily injury are higher than the level the law has set, you are on the hook financially. It doesn't matter that the state you live in has set a minimum - which you have followed. What matters is, if their medical bills are $500,000 and you were covered for only $15,000, then you will be responsible for paying the other $485,000! If that sends a shiver down your spine, it should. Such a judgment against you would likely instantly mean bankruptcy, but not before wiping out your savings completely.

• Property damage

  This aspect of liability is for damages to the other party's or parties' car or to surrounding property, like a street lamp, the front of a building, a bus stop, etc. This is also quite often the least expensive part of an auto accident. Lamp posts are easily repaired; people are not. Nonetheless, if a car is totaled and it was worth more than $15,000 (typical minimum coverage in many states), then once again you are on the hook for whatever goes beyond that number.

Is Liability Enough Coverage?

So, now you know what liability insurance is. And, hopefully, we've sobered you about what it is not - and how minimum state-mandated car liability insurance just isn't enough. Our point wasn't to scare you. Our point was to make it clear that the state's minimum requirement might qualify you to drive legally, but it barely protects you or your future. Accidents happen every minute of every day. And the likelihood is that one of these days the crash will be your fault. And when that happens, you'd better have enough coverage to protect yourself financially.