What does liability insurance cover?
Liability insurance pays for third-party losses. If you are at fault in an accident, this coverage pays for the other person’s medical bills and property repairs. It acts as a financial shield between your personal savings and a legal judgment.
How much liability coverage should I have?
The most important rule of insurance is: Your coverage limits should equal or exceed your total net worth. If your insurance limits are lower than the cost of the damages you cause, the injured party can sue you personally for the difference. This puts your home, savings accounts, and future earnings at risk.
Understanding the “Split Limit” Numbers
Insurance policies often list liability as three numbers, such as 100/300/100. Here is how to read them:
- Individual Medical ($100,000): The most the policy pays for one person’s injuries.
- Total Medical ($300,000): The most the policy pays for all injuries in one accident.
- Property Damage ($100,000): The most the policy pays to fix the other person’s car or property.
| Limit Type | What it Covers |
| Individual Medical | The most paid for one person’s injuries. |
| Total Medical | The most paid for everyone in the accident. |
| Property Damage | The most paid to fix the other person’s car or property. |
Why state minimums are usually not enough
Every state sets a legal minimum for liability, but these amounts are often dangerously low. If you total a new $60,000 SUV and only have a $25,000 limit, you are personally responsible for the remaining $35,000.
| Coverage Level | Best For… | Risk Level |
| State Minimum | Drivers with no assets or savings. | High (Assets exposed) |
| Mid-Range | Renters or those with modest savings. | Moderate |
| High Limits | Homeowners & those with assets. | Low (Best protection) |
What are the different types of liability?
While we often think of auto insurance, liability coverage is a critical part of several different policies:
- Auto Liability: Protects you if you cause a car accident.
- General Liability: Essential for business owners to protect against lawsuits.
- Homeowners Liability: Covers accidents that happen on your property, like a slip-and-fall.
Common Liability Insurance Myths
- “I don’t have many assets, so I don’t need much coverage.” * The Truth: A court can garnish your future wages for years to pay off a judgment if your insurance is too low.
- “Full coverage means I’m fully protected.”
- The Truth: “Full coverage” usually just means you have comprehensive and collision. It doesn’t mean your liability limits are high enough to protect your net worth.
Not sure if your current limits protect your assets? [Click here to request a coverage review].