What Car Liability Insurance Covers and Why States Require It

Car liability insurance pays for damage or injuries you cause to someone else in an accident

Liability insurance is the part of your car insurance that covers medical bills, lost wages, and property damage when you are found responsible for an accident. If you hit another car, a pedestrian, or someone's fence, your liability coverage pays their costs — up to the limits you chose when you bought the policy.

Every state except New Hampshire requires you to carry liability insurance before you can legally drive. The state sets a minimum amount you must carry, but that minimum is often too low to cover a serious accident. If you cause an accident that costs more than your liability limit, you can be sued for the difference, and a court can order you to pay from your wages or assets.

Liability insurance does not cover damage to your own car, medical bills for your own injuries, or theft. Those are separate coverages — collision, comprehensive, and medical payments — that you buy in addition to liability.

Key Takeaways

• Liability insurance covers injuries and property damage you cause to other people, not damage to your own vehicle.
• Every state except New Hampshire requires you to carry liability insurance, with minimum amounts set by state law.
• Liability limits are written as three numbers, such as 25/50/25, representing bodily injury per person, bodily injury per accident, and property damage.
• If an accident costs more than your liability limit, you can be sued personally for the remaining amount.
• Liability insurance is separate from collision and comprehensive coverage, which protect your own car.

How liability limits work and what the numbers mean

Liability limits are written as three numbers separated by slashes, such as 25/50/25 or 100/300/100. The first number is the maximum your insurance will pay for bodily injury to one person. The second is the maximum for all bodily injuries from a single accident. The third is the maximum for property damage in that accident.

If your policy is 25/50/25, that means your insurance will pay up to $25,000 for injuries to one person, up to $50,000 total for all injuries in that accident, and up to $25,000 for property damage. If you cause an accident that injures two people and damages a car, your insurance splits the $50,000 bodily injury limit between them. If one person's medical bills are $40,000, the other person's share is $10,000.

State minimums are often 15/30/5 or 25/50/25, depending on where you live. These minimums are rarely enough. A serious injury can cost $100,000 or more in medical care, lost wages, and pain and suffering. If you cause that accident with a 25/50/25 policy, your insurance pays $25,000 and you owe the rest.

What liability insurance pays for and what it does not

Liability insurance covers medical expenses, lost wages, pain and suffering, and property damage caused by an accident you are found responsible for. If you hit a pedestrian, your liability coverage pays their hospital bills. If you rear-end another car, it pays to repair or replace that car. If you cause an accident that keeps someone out of work for months, it covers their lost income.

Liability insurance does not cover your own injuries, your own car's damage, or damage to your car from theft, weather, or vandalism. It also does not cover damage you cause intentionally, accidents that happen while you are committing a crime, or accidents that happen while you are driving someone else's car without permission. If you are hit by an uninsured driver, your liability insurance does not help — you would need uninsured motorist coverage for that.

Liability also does not cover legal fees if you are sued, though some policies include coverage for defense costs. Check your policy to see whether your insurer pays your lawyer's fees or whether you pay them and the insurer reimburses you only if you win.

Why state minimums are often too low

States set liability minimums based on what was typical decades ago, not on what accidents actually cost today. A serious car accident can easily cost $200,000 or more. A pedestrian hit by a car might have permanent injuries requiring lifelong care. A multi-car pile-up can injure five or six people at once.

If you cause an accident that costs $150,000 and your policy limit is $50,000, your insurance pays $50,000 and you are responsible for the remaining $100,000. The injured person can sue you in court and win a judgment against you. That judgment can be enforced by garnishing your wages, placing a lien on your home, or seizing your bank accounts — depending on your state's laws.

Most insurance experts recommend carrying limits of at least 100/300/100, and higher if you have significant assets to protect. The cost difference between a 25/50/25 policy and a 100/300/100 policy is usually $15 to $30 per month, but the protection difference is enormous.

How liability insurance works when you cause an accident

When you cause an accident, the other person or their insurance company will contact your insurance company. Your insurer will assign a claims adjuster to investigate the accident, review police reports, and determine how much the other person's damages cost. If liability is clear — you ran a red light, for example — your insurer will usually offer to settle the claim.

The other person can accept the settlement offer, or they can reject it and sue you. If they sue, your insurance company will hire a lawyer to defend you in court. The court will decide whether you are responsible and, if so, how much you owe. Your insurance will pay up to your policy limit. Anything above that limit is your responsibility.

If you are found not responsible for the accident, your liability insurance does not pay anything. The other person's own insurance or they themselves must cover their costs. This is why it is important to report accidents to police and to your insurance company promptly — the police report and witness statements help establish who was at fault.

Umbrella insurance for protection beyond your liability limits

If you have significant assets — a home, savings, investments — you may want to buy umbrella insurance in addition to your car liability coverage. Umbrella insurance is a separate policy that covers claims above your car insurance limits. A typical umbrella policy costs $150 to $300 per year and covers $1 million in additional liability.

Umbrella insurance covers not only car accidents but also injuries that happen on your property, such as a guest who slips and falls on your driveway. It also covers some situations that your car insurance does not, such as libel or slander. If you cause a $500,000 accident and your car insurance limit is $100,000, your umbrella policy would cover the remaining $400,000.

You do not need umbrella insurance if you have few assets and little income to garnish. But if you own a home or have a stable job, the cost is low enough that it is worth considering, especially if you drive frequently or live in an area with high accident costs.

Liability insurance versus other car insurance coverages

Car insurance policies usually include several types of coverage, and it is straightforward to confuse them. Liability covers damage you cause to others. Collision covers damage to your own car from hitting another car or object. Comprehensive covers damage from theft, weather, vandalism, or hitting an animal. Medical payments covers your own medical bills regardless of who caused the accident.

Most states require liability but not collision or comprehensive. If you own your car outright, you can choose to skip collision and comprehensive. If you have a loan or lease, your lender will require you to carry them. Liability is the only coverage required by law in almost every state, but it is also the only coverage that protects you from being sued personally.

Some policies also include uninsured motorist coverage, which covers your injuries if you are hit by a driver with no insurance or by a hit-and-run driver. This is optional in most states but worth buying if you live in an area with many uninsured drivers.

Frequently Asked Questions

What happens if I cause an accident and do not have liability insurance?

You can be sued personally for all costs the other person incurs. A court can order you to pay from your wages, bank accounts, or home equity. You may also face criminal charges in some states, and your license can be suspended. Once you get a license again, you will be required to carry an SR-22 form proving you have insurance before you can legally drive.

Does liability insurance cover damage to my own car?

No. Liability covers only damage you cause to other people and their property. Damage to your own car is covered by collision insurance (if you hit another car or object) or comprehensive insurance (if your car is stolen, damaged by weather, or vandalized). You buy these separately.

Can I be sued if my insurance pays the full amount of the claim?

The other person can still sue you, but your insurance company will defend you in court. If the court awards a judgment above your policy limit, you are responsible for the difference. If the judgment is within your limit, your insurance pays it and the case is closed.

What if I cause an accident in someone else's car?

Your liability insurance typically covers you when you drive someone else's car with their permission. The car owner's insurance is usually the primary coverage, and your insurance is secondary. If the car owner's insurance limit is low, your insurance may cover the difference up to your own limit.

Do I need higher liability limits if I drive for work?

Yes. If you use your personal car for work — especially if you drive frequently or carry passengers — you should consider higher limits. A commercial auto policy may be required if you drive for a rideshare company or delivery service. Check with your insurance company about whether your personal policy covers work-related driving.