What Is Automobile Liability Insurance?

Automobile liability insurance is financial protection for a driver who, while operating a vehicle, harms someone else or their property. Automobile liability insurance only covers injuries or damages to third parties and their property, not to the driver or the driver’s property. The two components of automobile liability insurance are bodily injury liability and property damage liability.

KEY TAKEAWAYS

  • Automobile liability insurance is financial protection for an at-fault driver who harms someone else or their property in a car accident.
  • Bodily injury liability helps cover medical expenses for those involved in the accident.
  • Property damage liability helps cover costs of repairing the vehicles of the other drivers involved in the accident.

How Automobile Liability Insurance Works

Automobile liability insurance is designed to help to cover the expenses from damage that's the result of a driver. If a driver is found to be at fault of an accident, their insurance company will pay the property and medical expenses of all parties involved in the accident up to preset limits.
The two coverages for automobile liability insurance include:

Bodily Injury

Bodily injury liability of an automobile liability insurance policy covers an at-fault driver, so they don't have out-of-pocket expenses for others' emergency and ongoing medical expenses, loss of income, and funeral costs. It also helps cover the policyholder’s legal fees when the accident results in a lawsuit.

Property Damage

Property damage liability helps cover costs of repairing the vehicles of the other drivers involved in the accident. Property damage liability also covers repairs from damage done to structures, such as a home or retail establishment.

Automobile Liability Insurance Coverage Limits

Automobile liability insurance has limits for each of the components depending on the level of coverage that the insured chose when setting up the policy with the insurance company. Below are the types of coverage limits that are typically found in an auto policy.

Liability Limit for Property Damage

This limit is the maximum amount of coverage for damage done to a property. Any costs that exceed the limit would be out-of-pocket expenses for the at-fault driver.

Liability Limit for Bodily Injury per Person

The per-person limit is the maximum amount that the insurance company will pay out for each individual who has been injured in an accident. 

Liability Limit for Bodily Injury per Accident

The liability limit per accident is a financial cap for the total amount that the insurance company will pay for all of the individuals involved in an accident. In other words, the limit covers all of the medical expenses for those injured in an accident by the at-fault driver, but only up to the preset limit. Any medical expenses incurred that's above and beyond that limit would need to be paid by the at-fault driver.

Requirements for Automobile Liability Insurance

Each state sets the minimum standard required for automobile liability insurance, including how much coverage drivers are required to carry. However, all states require some level of liability insurance.
For example, a state might require all drivers to have liability insurance that covers $25,000 for injuries to one person, $50,000 for injuries to multiple people, $50,000 for death to one person, and $10,000 for property damage. In any state, drivers can purchase more liability insurance than the state’s required minimums, and it’s often smart to do so since medical bills can be very expensive.

Coverage Beyond Automobile Liability Insurance

Liability insurance can't be used for the at-fault driver's vehicle repairs or personal injury costs. For additional protection against damage to the vehicle itself from causes ranging from accidents to storms, auto owners can also purchase comprehensive insurance and collision insurance.

Comprehensive Insurance

Comprehensive insurance helps pay to replace or repair your vehicle if it's stolen or damaged in an incident that's not a collision. Comprehensive typically covers damage from fire, vandalism, or falling objects such as a fallen tree or hail.

Collision Insurance

Collision insurance, meanwhile, helps pay to repair or replace your car if it's damaged in an accident with another vehicle or object, such as a fence or a tree. These two types of insurance are optional for vehicles that are owned free and clear. If the vehicle is financed, the lender may require this additional coverage. The lender wants to protect the vehicle’s full value since it serves as collateral for the loan.

Example of Automobile Liability Insurance

Let's say an insured motorist had the following automobile liability coverage with their insurance company. 
  • Bodily injury liability limit per person of $60,000 
  • Bodily injury limit per accident of $150,000
The insured gets into an accident involving multiple people and is ruled at-fault for any damages. 
  • Person A has medical costs totaling $30,000
  • Person B has medical costs totaling $40,000  
  • Person C has medical costs totaling $50,000
The at-fault driver would be covered since each person that was involved in the accident had medical expenses that were less than $60,000 each. Also, the total amount of the costs for the injuries of everyone involved (except the at-fault driver) was $120,000, which is less than the per-accident bodily injury limit.
It's important to note that coverage limits can vary depending on the insurance company's policy. Some companies will not cover any expenses beyond the per-accident limit even if the per-person limit has not been exceeded.
Consider the example above and let's say each person had medical expenses of $55,000. Although the costs each fall within the per-person limit of $60,000, the total costs of $165,000 would be over the per-accident limit. As a result, the at-fault driver might need to cover the additional $15,000 in expenses since the cap per accident was $150,000.
Please consult an insurance agent and review multiple scenarios with them to fully understand the extent of the automobile liability coverage.

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