What is Vehicle Liability Insurance?
Auto liability insurance, which is required by every state as the minimum coverage expected, consists of personal/bodily injury protection, maximum payout limits, and property damage liability. Liability insurance is not full coverage insurance and was established to protect people, property, or other vehicles you may damage if you are in an accident.
Vehicle liability insurance is not the same as full coverage auto insurance (comprehensive and collision). Full vehicle coverage policies are usually required if you are financing your vehicle and have a lienholder, meaning your lender. Lenders require full coverage to protect their interest in the car in case it is in an accident. Full coverage does, however, include liability insurance.
Every state requires some sort of vehicle liability insurance be placed on a registered vehicle. The answer to the question what happens if you only have liability insurance and you get into a crash depends upon your state’s requirements and what type of crash occurs.
Image Credit: Car Crash / Wikimedia Commons
State-by-State Vehicle Liability Limits
Before we discuss what happens if you only have liability insurance and you get into a crash, you should find out what the required liability insurance limits are in your state and what they mean. First, check out the Consumer Action Website, which offers contact information for each state where you can inquire about vehicle liability insurance minimum requirements.
In New Mexico for example, the minimum liability requirements are $25,000/$50,000/$10,000, often referred to in the insurance world as 25/50/10. These three numbers consist of the following:
- $25,000 – Personal/bodily injury coverage
- $50,000 – The maximum personal/bodily injury payout
- $10,000 – Property damage protection and payout
How these minimum liability coverages payout can be complicated depending on what type of accident you’re in.
Car Accidents and Minimum Liability Coverage
Let’s take a car accident example. Say you live in New Mexico and have the minimum vehicle liability coverage required and hit another car with three people inside and crash into the wall of an office building. What happens next with your minimum liability limits?
- The 3 Injured People – In this example, if a person is injured the maximum they can receive is $25,000 with a $50,000 total payout on your liability policy. Here’s the tricky part. If all three people you hit were injured, because each person can receive $25,000 but your coverage limit is only $50,000, that means only two of the three people will get paid, depending upon who files with your insurance company first. The third person could, in effect, file a lawsuit against you personally to recoup the cost of their injuries.
- The Office Building Wall – Again, in this example, if it’s estimated that to repair the office building wall is $10,000 or under, your liability insurance will cover the entire repairs. If repairing the wall is higher, say $15,000, you may be sued personally by the owner of the office building for the additional $5,000 needed to repair the wall.
How to Protect Yourself
First, review your state’s requirements on the minimum amount of vehicle liability insurance. Next, think of accident scenarios to determine if you feel you need coverage higher that what is required. If you do feel you need additional liability insurance, contact your insurance company or agent and ask about raising your limits and what it will cost.
Again, what happens if you only have liability insurance and you get into a crash? If you only have your state’s minimum vehicle liability coverage, it may not cover the entire cost of the accident. Finally, keep in mind that most minimum liability policies will not cover the damage to your vehicle, only the other guy per se. To be safe, consider full coverage on your vehicles, especially if you have a teenage driver in your household.
Image Credit: Crashed Mustang / Wikimedia Commons
This post is part of the series: How Insurance Works When You Have an Accident
In this series you learn what happens if you only have liability insurance and you get into a crash, the definition of total car loss after and accident and why you should buy auto GAP Insurance to protect yourself if your car is totaled.