Automobile liability insurance pays for damage or injuries you cause to someone else in a car accident

Automobile liability insurance is the part of your car insurance that covers medical bills, lost wages, and property damage when you are found responsible for an accident. If you hit another car, injure a pedestrian, or damage someone's fence while driving, your liability coverage pays their costs — up to the limit you chose when you bought the policy.

This is different from collision or comprehensive coverage, which pay for damage to your own vehicle. Liability insurance protects the other person, not you. In most U.S. states, you are required by law to carry at least a minimum amount of liability coverage before you can register a vehicle or drive legally.

Key Takeaways

  • Liability insurance covers medical expenses, property damage, and lost wages for people you injure or whose property you damage in an accident you cause.
  • Every state sets a minimum liability limit you must carry; these minimums are often too low to cover serious accidents, so many people buy higher limits.
  • Your liability coverage does not pay for your own injuries or vehicle damage — that is what collision and comprehensive coverage do.
  • If you cause an accident and your liability limit is too low, you can be sued personally for the remaining costs.

How liability limits work and what the numbers mean

Liability policies are written with two or three numbers, like 25/50/25 or 100/300/100. The first number is the maximum the insurance company will pay for one person's bodily injury. The second is the maximum for all bodily injuries in one accident. The third (if present) is the maximum for property damage.

A policy of 25/50/25 means the insurance company will pay up to $25,000 for one injured person, up to $50,000 total for all injured people in that accident, and up to $25,000 for property damage. If you cause an accident that injures three people and damages a car, and your medical bills total $75,000, your insurance pays $50,000 (the per-accident limit) and you are responsible for the remaining $25,000.

State minimum limits vary. Some states require as little as 15/30/5 (meaning $15,000 per person, $30,000 per accident for injuries, and $5,000 for property damage). Others require 25/50/25 or higher. You can look up your state's minimum on your state's insurance commissioner website or by calling your insurance agent.

Why state minimums are often not enough

A serious car accident can cost far more than state minimums cover. A single hospitalization, surgery, and months of physical therapy can easily exceed $100,000. If you cause that accident and your liability limit is $25,000 per person, you will owe the difference out of your own pocket — your wages can be garnished, your bank account can be frozen, and your assets can be seized to pay the judgment.

Insurance companies and financial advisors often recommend carrying limits of at least 100/300/100 or higher, depending on your assets and income. The cost difference between a minimum policy and a higher-limit policy is usually $10 to $30 per month, but the protection is substantially greater.

What liability insurance does and does not cover

Liability insurance covers bodily injury (medical bills, lost wages, pain and suffering) and property damage (repair or replacement of the other person's vehicle, fence, building, or other property). It also covers your legal defense if you are sued — the insurance company will hire a lawyer to represent you at no cost to you.

Liability insurance does not cover damage to your own vehicle, your own medical bills, or injuries to you or your passengers. It does not cover accidents you cause while driving someone else's car (though their insurance may cover it). It does not cover intentional damage, criminal acts, or accidents that happen while you are using your car for commercial purposes like rideshare or delivery, unless you have added commercial coverage.

How a liability claim works after an accident

After an accident, you report it to your insurance company. The company assigns a claims adjuster who investigates the accident, reviews police reports, interviews witnesses, and determines who was at fault. If you are found to be at fault, the adjuster negotiates with the other person's insurance company or attorney to settle the claim.

If the other person's damages are within your policy limit, your insurance company pays the settlement and the claim is closed. If the damages exceed your limit, the other person can sue you personally for the difference. This is called an underinsured situation, and it is why carrying higher limits matters.

The claims process usually takes several weeks to several months, depending on the severity of the accident and whether the other party disputes fault. Your insurance company will keep you informed throughout.

Umbrella insurance as extra protection

If you own a home, have significant savings, or earn a high income, you may want to buy umbrella insurance (also called excess liability insurance). Umbrella policies sit on top of your auto liability coverage and kick in when your auto liability limit is exhausted.

For example, if you cause a serious accident with $500,000 in damages and your auto liability limit is 100/300/100, your auto insurance pays $300,000 and your umbrella policy pays the remaining $200,000 (up to your umbrella limit, which is often $1 million). Umbrella policies are inexpensive — usually $150 to $300 per year for $1 million in coverage — and they protect your assets if you are sued for more than your auto liability limit covers.

Frequently Asked Questions

What happens if I cause an accident and don't have liability insurance?

You can be fined, your license can be suspended, and you can be sued personally for all damages. The other person can take you to court and win a judgment against you, which means your wages can be garnished and your bank accounts frozen. This is why liability insurance is required by law in every state.

Does liability insurance cover me if I'm driving someone else's car?

Usually not. Your liability insurance covers you when you drive your own car. If you drive someone else's car with permission, their insurance typically covers you as a permissive driver. If you cause an accident, their insurance pays first, and if the damages exceed their limit, your insurance may cover the difference — but this varies by policy, so ask your agent.

Can I be sued even if my insurance company pays the claim?

If the damages are within your policy limit, the other person usually cannot sue you because the insurance company has already paid them. If the damages exceed your limit, they can sue you for the difference. This is why carrying adequate limits is important — it protects your personal assets.

Does liability insurance cover damage I cause while parking?

Yes. If you hit another car while parking, back into a building, or damage someone's property while maneuvering your vehicle, your liability coverage pays for it. The only exception is if the damage is intentional or happens while you are using your car for commercial purposes without commercial coverage.