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Auto Insurance Liability Limits: How Are They Determined?

Updated: September 25, 2018

Auto insurance liability limits are an important part of any policy, no matter what price the customer is paying.

In most states, even cheap auto insurance policies must have some form of liability coverage, which ensures drivers can take their cars on the road.

Before getting a cheap auto insurance policy, customers must confirm with the company that this policy includes the minimum required levels of liability coverage.

The legal requirements determine how much liability coverage is included in certain plans.

For this reason, the cheapest plans in one state may have different liability levels than those found in another state.

What is Liability Insurance for Vehicles?

Liability insurance is a type of car insurance that is legally mandated for inclusion in policies, according to the laws of a particular state.

It is important to remember that insurance companies only pay a certain maximum amount of liability coverage in these accident situations.

The purpose of liability insurance is to ensure that other drivers on the road are protected, in the event of an accident. Liability insurance pays for the damaged cars, property, medical expenses or lost income of people who are involved in an accident that is not their fault.

For example, a customer who has liability insurance in their cheap auto insurance plan gets into an accident. If the accident is deemed as being the customer’s fault, the liability portion of his or her insurance policy will pay for the expenses incurred by the other party in the accident.

It is important to remember that insurance companies only pay a certain maximum amount of liability coverage in these accident situations. Each policy indicates the maximum levels for injury-related expenses, property damage and miscellaneous costs.

Customers cannot get policies with liability limits below the legal limit, but they are permitted to get higher limits for each liability category.

Legally Mandated Levels of Liability Insurance for Vehicles

Every state has different laws regarding the liability limits included in cheap auto insurance policies. Almost all states require some level of liability coverage, but the categories of liability sometimes differ from state to state.

A vast majority of states make it mandatory for liability coverage for vehicles to include bodily injury and property damage.

For example, some states require that liability coverage include bodily injury and property damage coverage for uninsured or underinsured motorists. This means that if the policyholder gets into an accident involving someone without insurance, this portion of the policy will pay for damages/expenses incurred by the policyholder.

A vast majority of states make it mandatory for liability coverage for vehicles to include bodily injury and property damage. This means that the policy must pay some amount of money to passengers and drivers with regards to their medical expenses or car repair bills. Property damage also refers to stationary objects hit by cars, such as a garage or front-porch.

Liability coverage is slightly different in states where no-fault car insurance exists. In no-fault states, each driver has an insurance policy that pays for damages incurred, regardless of fault.

However, these states still make it mandatory for liability coverage to include bodily injury.

Types of Liability Insurance for Vehicles

There are two major types of liability insurance for vehicles: bodily injury coverage and property damage coverage. Bodily injury deals with medical expenses incurred by passengers and drivers, while property damage pays for property damaged in an accident.

In the case of commercial auto insurance, the liability insurance may also include umbrella insurance.

In the case of commercial auto insurance, the liability insurance may also include umbrella insurance. This is a type of insurance that protects businesses against a blanket set of liabilities related to auto accidents. Some umbrella insurance coverages extend up to $1 million in protection.

Unfortunately, not every driver on the road is a law-abiding citizen. Many people drive their cars without proper auto insurance. To protect others in these situations, many states request that policies include uninsured or underinsured motorist coverage.

These coverages are a form of liability insurance that pay out for both property damage and bodily injury in accidents where one of the parties has no insurance or too little insurance.

Keep in mind, underinsured/uninsured coverage pays out to the insured party in the accident, not the party that does not have adequate car insurance.

Auto Insurance Liability Limits

When discussing auto insurance liability limits, it is important to note that they are usually divided into sub-sections within the liability portion of an auto insurance policy.

Customers must often make the decision about risk vs. reward where liability limits are concerned.

For example, the legal limits in a state may suggest that policies need $20,000 of coverage for bodily injury to one person, $60,000 for injuries to all the people in the vehicle at the time of the accident, and $15,000 for property costs related to the accident.

In this case, the customer can choose to get policies with increased limits to each section, or stick with the legal minimum if they require a cheap auto insurance policy. If other coverages are required by law, such as uninsured or underinsured motorist coverage, those limits are also specified by the state government.

Customers must often make the decision about risk vs. reward where liability limits are concerned.

People who drive their cars for long distances on a daily basis should consider higher coverage limits, because they will have to pay out of pocket for additional damages in the event of an accident.

How Much Auto Insurance Liability Do You Need?

As mentioned above, the level of auto insurance liability selected by a customer depends heavily on their financial situation, where they drive their vehicle and how often they are driving. In addition, past accident records are also a reliable indicator for auto insurance liability limits.

While anyone can get into an accident at any time, infrequent drivers are taking a calculated risk that they are less likely to cause a car accident.

Customers who get into a lot of accidents, or drive in very busy cities, are strongly urged to get higher levels of liability insurance for vehicles. This is a safe way to ensure that you are not suffering significant out of pocket bills after car accidents.

In contrast, individuals who only drive their car for a few miles a day do not need huge liability limits.

While anyone can get into an accident at any time, infrequent drivers are taking a calculated risk that they are less likely to cause a car accident.

Finally, the individual’s financial situation plays a role in their auto insurance liability limits. If a person simply cannot afford higher insurance premiums, they have no choice but to select policies with lower liability limits.