Skip to content

What is Liability Insurance? What Does it Cover?

What is Liability Insurance? What Does it Cover?

Liability insurance coverage protects you financially if you’re responsible for someone else’s injuries or property damage. Liability coverage comes standard with most vehicle and property insurance policies, including auto and homeowners insurance.

For car insurance, you may see this coverage referred to as auto liability coverage. For property insurance, it’s usually referred to as personal liability coverage.

Liability insurance protects you financially if you’re responsible for an accident. It covers the other party’s medical expenses, property damage, and legal costs, reducing your out-of-pocket expenses. This coverage ensures that injury or damage claims against you are paid up to your policy limits, preventing financial strain.

Types of liability insurance

Auto liability. Covers you if you are at fault for an accident while driving your car. This includes bodily injury to others and damage to their property. 

Commercial general liability (CGL). Covers you if you are at fault for bodily injury, property damage, slander, libel, or false advertising. This type of insurance is often used by businesses. 

Small business liability. Covers you if you are at fault for bodily injury or property damage on your business premises or caused by your business activities. 

What liability insurance covers Medical expenses, Lost wages, Pain and suffering, and Defense and court costs if you are sued. 

Vehicle insurance (including car, motorcycle, RV, boat, and others)

  • Injuries you cause to someone else while driving
  • Damage you cause to other vehicles while driving
  • Damage you cause to someone else’s property, such as a mailbox or street sign
  • Legal expenses for accident-related lawsuits

What factors affect the cost of liability insurance? 

Your age, Your location, Your driving record, The type of vehicle you drive, and How you use your vehicle. 

What state laws affect liability insurance?

  • Each state has its own minimum required coverage amount. 
  • Some states require liability coverage to legally drive on the road. 

How much liability coverage do I need?

Typically, you should select a limit that matches or exceeds your total net worth. This way, your assets are well-protected if you’re legally responsible for someone else’s injuries or property damage. 

Liability coverage limits for different types of vehicles are typically represented by three numbers, e.g. 25/50/25. These numbers represent how much you’re covered for bodily injury per person ($25,000), bodily injury per accident ($50,000), and property damage per accident ($25,000). For personal liability coverage, you select one total limit, typically ranging from $100,000 to $500,000.

FAQ

What does liability insurance cover?

Liability insurance covers costs if you’re responsible for an accident that causes injury or property damage to others. It typically includes bodily injury liability, which pays for medical expenses and lost wages, and property damage liability, which covers repairs to another person’s property, such as their vehicle or home.

Does liability insurance cover my own injuries or vehicle damage?

No, liability insurance does not cover your medical expenses or damage to your own vehicle. It only pays for injuries and property damage suffered by others when you’re at fault. To cover your own costs, you may need additional coverage like collision or medical payments insurance.

Is liability insurance required by law?

Yes, most states require drivers to carry a minimum amount of liability insurance. The required limits vary by state, and failing to have the minimum coverage can lead to fines, license suspension, or other penalties.

What happens if damages exceed my liability limits?

If the costs of an accident exceed your policy’s limits, you are personally responsible for paying the remaining amount. Choosing higher coverage limits can help protect your finances if you’re involved in a serious accident.

Can liability insurance help with legal costs if I’m sued?

Yes, liability insurance typically covers legal expenses if you’re sued after an accident where you’re found at fault. This includes attorney fees, court costs, and settlements up to your policy limits.