Liability car insurance is a component of auto insurance that is required by nearly every state. Even in New Hampshire, which doesn’t explicitly require car insurance, you need to show proof of financial responsibility if you’re in an accident. The easiest way to do that is with car insurance.

Liability auto insurance is divided into two parts: bodily injury liability (BI) and property damage liability (PD). These two parts work together to compensate anyone who was injured by your vehicle, protecting your financial health and assets.

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What does auto liability insurance cover?

Bodily injury liability coverage pays for others’ injuries or death in accidents where you are at fault. This covers the driver and passengers in another car, as well as any motorcyclist, bicyclist or pedestrian you harmed with your vehicle. Car insurance policy terms differ, but generally, BI covers up to your limits for the following:

• Medical expenses of an injured party
• Funeral expenses of a fatality
• Loss of income
• Pain and suffering

Property damage liability insurance covers damage to another person’s property from accidents that are your fault. Below are a few examples of property that could potentially be damaged:

• Vehicles
• Fence
• Building
• Fire hydrant
• Guardrail
• Pole
• Landscaping

Liability also covers legal defense in the event that you’re sued because of an auto accident.

Understanding liability limits

Liability insurance is broken down into three amounts: per person limit for bodily injury, per incident limit for bodily injury, and a property damage limit. Using example numbers, the limits are generally written as 25/50/25. Here’s how to read them:

• First number (25) = $25,000 and is the maximum amount your bodily injury liability will pay for injury-related expenses per person.
• Second number (50) = $50,000 and is the maximum amount that your bodily injury liability insurance will pay out for all injuries per incident.
• Third number (25) = $25,000 and is the maximum amount that your property damage liability insurance will pay out for all property damage per incident.

Bodily injury maximum limits per incident are always higher than property damage since medical bills tend to add up much quicker than property damage expenses.

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Minimum liability limits by state

Liability insurance comes with limits that you choose when you begin your policy. The minimum liability limits that you can buy vary by state. You cannot buy less than your state’s minimum required by law, but you can buy higher liability limits.

For example, Ohio’s minimum limits are written as 25/50/25. This breaks down to $25,000 worth of bodily injury coverage per person you injured, with a total of $50,000 for all injuries sustained in one accident (incident) and $25,000 worth of property damage liability for damages you caused to others’ car or property.

Beyond liability coverages, some states require that you purchase other types of coverages as part of your basic policy. These extra coverages vary by state but many include: uninsured and/or underinsured motorist bodily injury coverage (UM or UMBI /UIM), uninsured motorist property damage (UMPD), personal injury protection (PIP) or Medical Payments (MedPay).

• UM bodily injury – Pays for your medical bills, up to your limit, if you’re injured by an at-fault, uninsured driver in an auto accident.
• UIM – Pays for your medical bills, up to your limit, if the at-fault driver is uninsured or doesn’t have sufficient coverage to pay for your medical expenses.
• UMPD – Pays for damages to your car, up to your limits, if your car is damaged by an at-fault, uninsured driver.
• PIP and MedPay – Both are medical coverages that cover your injuries from an auto accident, up to your limits, regardless of who was at fault.

You can find your state’s minimum car insurance requirements in the chart below.

Many states just required liability coverages, so you have a way to cover damages you cause others, but some require a variety of other coverages. Here is your cheat sheet for the abbreviations used in our chart for various coverages.

• UM = Uninsured motorist coverage.
• UIM = Underinsured motorist coverage.
• UM BI: Uninsured motorist bodily injury coverage.
• UMPD: Uninsured motorist property damage coverage.
• BI liability: Bodily injury liability.
• PIP: Personal injury protection.
• PPI: Property protection insurance (Michigan).

Source: Property Casualty Insurers Association of America and Insurance Information Institute; state departments of insurance and motor vehicles.

New Hampshire doesn’t require car insurance, but you must be able to show proof of financial responsibility if you’re in an accident.

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Liability insurance requirements

Most states require you to carry liability car insurance, and those states that do not have compulsory auto insurance laws still have financial responsibility laws. These financial responsibility laws state you must be able to financially compensate someone to whom you cause harm while driving. In general, the simplest way to accomplish this is with car insurance.

In some states, you can acquire an alternative to liability in the form of a surety bond. The amount you must obtain varies by state. In Ohio, you need a bond of $30,000, and in Texas, it is $55,000. A surety bond requires you to incrementally pay a percentage of the total amount, and then you would owe the balance of the bond amount if you were in an accident. Buying car insurance, in comparison, is easier for most people – and isn’t the same risk to your savings.

What are the recommended liability limits?

Insurance experts recommend liability limits of 100/300/100. If you want the best protection available, that is usually 250/500/100, though a few auto insurers will allow drivers to pick coverage as high as 500/500/300. Higher limits mean you don’t put your assets at risk by having limits that could easily be surpassed if you’re at fault in an auto accident.

What happens if you exceed your liability limits?

It’s wise to choose higher limits for your liability coverages to protect yourself, as you are personally responsible for expenses of the harmed party that exceed your limits. It’s better to pay a bit more for car insurance, if you can afford it, than to pay thousands or even hundreds of thousands of dollars in medical bills, should someone you harm suffer severe injuries.

For example, California has minimum liability limits of 15/30/5. If you hit a car valued at $30,000 and total it while carrying only minimum limits, you would likely be personally responsible for paying $25,000, since your property damage coverage will pay out only $5,000.

If you severely injured the occupants of the other vehicle and their medical bills added up to $200,000, your limits would only cover $30,000 of that – leaving you to figure out how to pay the remaining $170,000 to the injured parties.

You may assume you won’t be sued if you have no assets to go after. However, assets or not, you may be sued, and in many states if a judgment is made against you in court, you need to pay or get a payment plan approved. Failure to do so can result in license and/or registration suspension, garnished wages, or, in some states, liens can be made against your real estate or personal property.

How much does liability car insurance cost?

The types of coverage you choose, your limits, deductible amount, and multiple personal factors determine your total premium amount. The cheapest auto insurance will be for minimum liability. Here are common factors insurers consider when setting your rates:

• Type of vehicle you drive
• Use of vehicle use (personal or business)
• Miles driven per year
• Geographical location
• Age
• Years of driving experience
• Driving record
• Claims history
• Marital status
• Previous insurance coverage
• Credit history (except in California, Hawaii, and Massachusetts)
• Gender (except in Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania)

Insurers weigh the above risk factors differently, so make sure to shop around to find the car insurance company that has the best rate for your specific situation.

You can find the average rate for your state or car by using Insure.com’s interactive tools.

How much does it cost to increase my liability coverage?

It doesn’t cost double to double your liability limits. Insurers in some states will offer a substantial increase in liability coverage for less than a 10 percent increase in your annual premium. Instead of assuming you can only afford minimum limits, even if you’re a poor college student, check to see what it will cost to bump up your limits a little or a lot.

The chart below demonstrates the average cost per state of increasing liability coverage to 50/100/50 from the minimum state requirement. Keep in mind that the state requirement may also include personal injury protection, medical payments, uninsured/underinsured motorist and/or uninsured motorist property damage. For an average of $67 extra a year, you can decrease the chance of low limits leaving you personally responsible for thousands of dollars in claims after an accident.

What isn’t covered by auto liability coverage?

Liability does not cover you or your car in any way.

Bodily injury liability does not cover injuries to those in your vehicle, for that you need personal injury protection (PIP) or medical payments (MedPay) or health care coverage. If you have PIP or MedPay, this form of coverage would be primary to your health care insurance. If people in your car have a PIP car insurance policy of their own, it normally would be primary to your coverage.

Property damage liability coverage does not cover your vehicle. If you want coverage for your vehicle, you need to add optional coverages of collision and comprehensive to your car insurance policy.

Auto insurance policies also contain specific exclusions to the liability coverage. Auto policies typically do not provide liability coverage for the following:

• Intentionally causing injury or property damage
• Property damage belonging to the insured (also referred to as household exclusion)
• Property damage to property that is rented, used by, or in the care of the insured
• Vehicles used in racing or speed contests
• Vehicles not registered for public roads or designed primarily for off-road activities
• Liability arising out of the ownership or operation of a vehicle being used for “livery conveyance” (i.e. transportation of goods or people for monetary compensation. This includes taxi drivers and delivery services, even delivering newspapers or pizza can void your liability coverage)

Many auto insurance companies have added on an exclusion of coverage that is specific for driving for ridesharing drivers, like Uber or Lyft. If ridesharing drivers want coverage, they need to look for an insurer that offers an endorsement or special rideshare coverage.

The household exclusion keeps you from making a liability claim if someone in your household damages property owned by you or your household.

For example, if a teenager backs his car into his mother’s car and then the mailbox, liability claims cannot be put in for any of the damage since the car and mailbox are property of the household. Mom and son would have to make collision claims – each with a deductible due – for the cars’ damages, and the family will have to pay for the damaged mailbox out of pocket.

Catastrophic incidents are typically excluded on an auto liability policy. This exclusion generally includes damage (bodily injury or property damage) resulting from:

• Nuclear exposure or explosion (including the resulting fire, radiation, or contamination)
• Bio-chemical exposure or attack
• War (declared or undeclared)