When is liability insurance all the car insurance you need to carry?

Written by Tom Tennant on March 22, 2011 & Posted in Auto Insurance

If you do an online search on how to save on car insurance, lots of results will pop up. Many of these results will tell you that you can save on auto insurance by carrying the state-minimum liability insurance, along with the right combination of comprehensive and collision insurance. They conclude by telling you to eschew extras and compare auto insurance quotes from several different providers. Once you've completed these steps, you can drive happy with the knowledge that you got the best automobile insurance rate.

But is settling on the minimum coverage required by law, like your state's minimum liability limits, a smart move? As with all such questions, the answer is both "yes" and "no."

Liability insurance defined

Let's quickly review what car insurance companies mean by liability insurance. Liability insurance comes in two forms--bodily injury and property damage. Here is what the two terms mean:

  1. The bodily injury portion of liability insurance covers certain expenses for injuries to others, including medical bills and loss of income.
  2. The property damage portion of liability coverage takes care of expenses related to the destruction of someone else's personal property. That's usually their vehicle, but it could include a mailbox, streetlight or a convenience store window.

The limits of liability insurance

Neither injuries to you nor damage to your vehicle are covered by liability insurance. If you hit another car, damage to your car is covered under the collision portion of an auto insurance policy. When something other than a crash damages your car, like a fallen tree limb or an errant deer, damage to your vehicle is covered under the comprehensive portion of your policy.

Understanding all that, does sticking with the state-minimum liability requirement to get cheap insurance really make sense? Not having enough liability coverage could be much more costly than money spent on premiums for more than the minimum. If you are found responsible for an accident, you are also responsible for expenses incurred in the accident. If your liability insurance doesn't cover the full cost of those expenses, and you can't afford to pay out-of-pocket, the other party can sue you to get what's owed.

So, unless you absolutely cannot afford more than the state minimum, it pays to carry enough liability insurance to protect your assets, like your home or your personal savings. As a rule of thumb, the Insurance Information Institute recommends a minimum of $100,000 bodily injury protection per person and $300,000 per accident.

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