Breaking Down Your Auto Insurance Policy (Part 1: Liability)
Ask any tenured insurance professional what the most important coverage on an auto policy is and you should only get one simple answer. Liability coverage. Don’t get me wrong, your auto policy as a whole provides a ton of important features, but your exposure to mass catastrophic loss lands when you are found at fault for an accident and you are liable for another party’s damages. With that being said the goal of this article is to provide a helpful guide to what Liability coverage is on your auto policy and why it is so important.
What is Liability Coverage?
The liability portion on your auto policy will cover two types of costs when you are found at fault for an accident. The coverage is designed to pay for the other party’s medical costs, and property damage to make them whole again. An important thing to know is that Liability will NOT pay for your damages or medical costs. There are other portions of your policy to help with this like collision coverage, and medical payments. This is solely to provide compensation for the other driver/property owner’s expenses.
Do I need Liability Coverage?
Simply put. Yes! In fact, to have a legal registration on your vehicle it is required to hold liability insurance. Without this specific coverage, you are not only sticking your neck out financially, but you are also subject to hefty fines from your local DMV.
Let’s break down the liability portion of your auto insurance:
- Bodily Injury Liability
If you are looking at your current policy this is usually the first coverage listed. Bodily injury liability is for when you are found at fault for an accident and hurt someone. This coverage will pay for the medical expenses associated with that accident. The numbers you see on your policy are the limits of liability. This is the absolute max your policy will pay out. Any damages over that amount you are on the hook for personally. This is helpful to know when selecting your coverages.
- Property Damage Liability
This one is listed right below the bodily injury liability on your policy. Property Damage liability is the coverage that kicks in and pays for WHAT you damaged in that very accident. This can be the other person’s vehicle, a guardrail, etc. One of the better examples I like to use is that a client of ours accidentally drove through a friend’s garage. The property damage liability is what paid to have the garage door fixed.
Now that we know what each line covers, let’s break down how each coverage can be set up for you.
- Split coverage limits
Most people have split coverage limits. This is when there are separate coverage limits on a Per Person and Per Occurrence basis. For example, you may see on your policy where the bodily injury liability reads $250,000 per person/ $500,000 per occurrence. Simply put this means the max your policy will pay out on the bodily injury side for any one person is $250,000, but it will pay out a total of $500,000 for the occurrence as a whole if there is more than one person involved.
Your property damage liability is a completely different line item and it will read $100,000 per occurrence
So your limits of liability will look like the following $250,000/$500,000/ $100,000
- Combined Single limit or Single Limit
There is an option available with most carriers called a combined single limit liability. This is when your total liability coverage is lumped (or combined) into one dollar amount. For example, If you have a $500,000 Combined single limit liability coverage. Your liability limit is up to $500,000 for everything liability related. Bodily injury and Property Damage. This coverage has its advantages for its flexibility and is certainly worth exploring when talking to your insurance agent.
How Much Liability Insurance Should I have?
With liability being such an important coverage in protecting your finances and from massive loss, we always suggest opting for strong coverages here. Liability is not where you want to cut corners to save money on your auto policy. A move like this could end up costing you much more in the long run! With the rising cost of medical care and vehicles used and new costing more than ever, we suggest carrying liability coverages of at least $250,000/ $500,000/ $100,000, or if you like the concept of a Combined Single limit, we recommend a $500,000CSL. This will ensure you have a solid base of protection against minor and not-so-minor accidents. You can always call any one of our liability specialists at The Staples Agency and we would be more than happy to help and consult you on a strong policy.