Liability Insurance Coverage. How Much Should You Insure?
Liability is one of the fundamental forms of coverage addressed in most automobile insurance policies. Understanding the purpose of liability insurance will help you decide how much coverage is needed to cover losses for which you are legally liable.
Legally Liable: Liability Insurance Coverage
Auto insurance can include liability insurance coverage for accidents involving bodily injury and/or property damage for which the policyholder is legally liable. In other words, liability protection is the coverage that pays for injuries and damage sustained by a third party and/or their property for which you are responsible.
Insurance that Covers Bodily Injury (BI)
If you cause an accident and someone is injured, your liability coverage as part of your automobile insurance will pay for their injuries. Minimum amounts of liability insurance are often required by state law, however higher limits are usually available. Policies with split limits (i.e. 25/50/10) of liability separate the amount of insurance coverage available for each injured person and the amount of coverage available for the accident. For example, an insurance policy with split limits of 25/50/10 means $25,000 is the maximum amount payable by the policy for the bodily injury per person; $50,000 is the maximum payable by the policy per accident; the third number deals with property damage, which is discussed below. Other insurance policies have a combined single limit (e.g. $100,000). Combined single-limit policies offer a single amount that is the maximum amount payable by the policy for bodily injury and property damage.
Insurance that Covers Property Damage (PD)
If you cause an accident and someone else's property is damaged, your automobile insurance liability coverage will pay for the damage. In an accident, damaged property often includes the other driver's vehicle. However, property damage insurance coverage will also pay for damage to other types of property, such as a sign or light pole.
In insurance policies with split limits (i.e. 25/50/10), the third number indicates the maximum amount payable by the policy for property damage per accident. Combined single-limit policies offer a single amount that is the maximum amount payable by the insurance policy for bodily injury and property damage.
Required Minimums for Liability Insurance Coverage
Some states require drivers to carry a minimum amount of liability insurance for property damage. Higher limits are usually available.
Is there any way to predict the severity of an accident or how many people may be involved before it happens? Because the answer to this question is "no," higher limits of liability insurance coverage are always recommended.
Should You Save Money on Liability Insurance Coverage?
Liability limits are one way to save money on your insurance policy, but you always need to be very careful about how low you choose to go. First, you need to find out if your state has a required minimum for liability insurance coverage and what that minimum is. Then you need to decide if you want more liability insurance coverage than your state requires.
The Risk Involved with Saving on Insurance Liability Limits
Paying less on your liability limits works like this: the lower your limits, the lower your insurance premium will be. Your first instinct, then, is to make those insurance liability limits as low as possible. But you need to remember that means you will be covered by your insurance for less money in case an accident does happen. So you need to figure out, realistically, how much you can cover out of your own pocket. Paying more on your insurance premium now may feel unnecessary, but paying thousands if an accident does happen will feel much worse.
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