Understanding Liability Only Insurance

By Desiree Baughman
Desiree maintains insurance licensure in 46 states, and by combining years of experience as a writer and insurance professional, she delivers information consumers can easily relate to and understand. A graduate of Sweet Briar College with a diverse writing portfolio, she regularly serves as an expert source and commentator for respected outlets like CBS Money, Bankrate, and Ragan.com.

Understanding Liability Only InsuranceIf you plan on driving your vehicle, then having liability auto insurance at minimum is required by law in 48 states. Failing to carry the required coverage is illegal, and breaking this law can result in hefty fines, losing your license, and even serving jail time.

Every state has different minimum requirements, but the one type of insurance every driver must have is liability. Although Virginia and New Hampshire don’t require liability insurance, New Hampshire does require it certain situations, such as those who just had licenses reinstated, who were found at fault in an accident in which they were uninsured, and those with DWI convictions, and others. Virginia, on the other hand, allows drivers to forgo liability insurance as long as they pay an uninsured motorist fee of $500 annually. In both states though, passing on liability insurance doesn’t release a driver from liability if they cause an accident.

Regardless of whether your state legally requires it or not, there are important things to consider. Is liability insurance all you need, and are the amounts your state requires you to carry sufficient, or should you carry higher limits?

There’s no universal right answer. To help car owners come to a decision suiting their budget and lifestyle, we’ve compiled information that will tell you all of what you need to know about liability insurance so that you go into that insurance office armed and ready.

What is Liability Only Insurance?

Liability only insurance (sometimes referred to “at-fault” insurance) protects drivers should they damage the property of someone else property or injure another individual with their vehicle. What it doesn’t cover is your vehicle or any medical costs you may incur. If you’ve ever looked at your policy, you’ve likely noticed something that looks like, “25/50/25” referring to liability insurance. But what do those numbers mean and represent?

When you see something like “25/50/25,” you’re seeing the representation of “split limits.” The first two numbers refer to bodily injury liability, and the latter refers to property damage liability. Here’s what each number stands for in the order you see them on your policy:

  • Bodily Injury Liability Limit Per Person Injured: This is the first number you would see when liability is referred to in the “25/50/25” form. This coverage is the maximum amount your policy will pay out for the medical expenses of an individual injured in an accident you’re at-fault for.
  • Bodily Injury Liability Limit Per Accident: This is the second number you see, referring to how much your insurance company would pay out for medical expenses on a per accident basis that are the result of an accident you’ve caused.
  • Property Damage Liability Limit: The third number you see, which represents the maximum amount your insurance company will pay to cover the costs of repairing or replacing anyone else’s property that you’ve caused damages to.

The important thing to note about liability insurance is that the insurance company will not pay out anything above your chosen liability limits. Once your policy’s liability limits are exhausted, you’re responsible for paying for them out of pocket. For example, if you cause an accident that totals a Lamborghini Aventador that’s valued at $350K and only carry $25K in property damage liability, you’d be responsible for coming up with the remaining $325K difference. If you can’t pay the remaining difference, you may face a lawsuit and have assets seized or wages garnished. This is why it’s a good idea to go above and beyond state minimum requirements, as these limits seldom provide sufficient coverage and protection for drivers. Additionally, if possible, carry umbrella liability insurance, a separate type of policy that can kick in if your auto insurance liability limits have been exhausted.

When Liability Isn’t Enough

As mentioned above, liability insurance is the one type of insurance car owners must have by law, but car owners are often surprised to find out that lenders require them to carry more than state minimum limits.

For instance, if you plan on leasing a vehicle or if you financed a car and still owe on it, the lender will likely insist that you not only have liability limits greater than state minimum limits, but also invest in additional liability coverage on the vehicle prior to them approving of a car loan. Why? Because until the car is paid for in full, the lender technically owns the vehicle. By insisting on additional coverage (usually full coverage), lenders are protecting their asset should it become damaged and should they need to repossess and liquidate it at some point in the future.

What is Full Coverage Insurance?

Full coverage insurance includes:

  • Liability only insurance
  • Comprehensive coverage
  • Collision coverage

Comprehensive coverage is designed to pay for any incidents that aren’t under you control. This may include things like:

  • Vandalism
  • Fire
  • Theft

Many insurance companies offer a myriad of different coverage options under comprehensive insurance plans, so if you’re considering this type of insurance, assess your needs and situation, and try to build a comprehensive coverage plan that makes sense for you and your lifestyle.

Collision coverage is just as it sounds – if you are involved in an accident or collision, this coverage will cover you repairs. Whether your car is totaled or you suffer a mere ding on the bumper, this coverage will take care of it for you – that is, after you pay your deductible.

The Benefits of Liability Only Insurance

Undoubtedly there are some benefits that come with having liability only insurance. The primary benefit is the financial aspect. Carrying liability insurance can reduce your insurance costs by 50% or even more, saving many car owners hundreds of dollars every year.

The other benefit to this type of insurance is mostly for those driving an older vehicle with little to no value. If you have an older sedan that’s been paid off for years and that lost its new-car smell years ago, purchasing full coverage likely wouldn’t be to your benefit. If the cost of the insurance outweighs the value of the car, strongly consider sticking with liability only insurance, and thanks to the extra savings from forgoing coverage on your vehicle, opt for the highest possible liability limits.

The Drawbacks of Liability Only Insurance

Liability may protect those around you, but if you should happen to get into an accident, then you’ll be solely responsible for paying for any repair work on the car, or for replacing it if necessary. Hopefully, however, the money that you’re saving by having liability only insurance is being stashed away for these types of situations, or perhaps being saved up to purchase a new set of wheels when your old beater kicks the bucket.

Liability only insurance set at a limit that will sufficiently cover you should you cause an accident (and that’s almost always above the state limit) is a good idea for older cars, but full coverage is the smart choice for vehicle owners who are driving around a new vehicle. Even if that brand new car is paid in full and there is no insurance company forcing you into certain types of coverage, it’s still a good idea to have that insurance in place. Just as the banks insist on this type of insurance to protect their investment, you should protect your investment as well with full coverage insurance.