Liability car insurance is a component of auto insurance that is required by nearly every state. Even in New Hampshire, which doesn’t explicitly require car insurance, you need to show proof of financial responsibility if you’re in an accident, and the easiest way to do that is with car insurance.

Liability auto insurance is divided into two parts: bodily injury liability (BI) and property damage liability (PD). These two parts work together to compensate others to whom you’ve caused harm with your vehicle, thereby protecting your assets.

What does auto liability insurance cover?

Bodily injury liability coverage pays for others’ injuries or death in accidents where you are at fault. This covers the driver and passengers in another car, as well as any motorcyclist, bicyclist or pedestrian you harmed with your vehicle. Car insurance policy terms differ, but in general, BI covers up to your limits, for the following:

  • Medical expenses of an injured party
  • Funeral expenses of a fatality
  • Loss of income
  •  Pain and suffering

Property damage liability insurance covers damage to another person’s property from accidents that are your fault. Below are a few examples of property that could potentially be damaged:

  • Vehicles
  • Fence
  • Building
  • Fire hydrant
  • Guardrail
  • Pole
  • Landscaping

 Liability also covers legal defense in the event that you’re sued because of an auto accident.

Most states require you to carry liability car insurance, and those states that do not have compulsory auto insurance laws still have financial responsibility laws. These financial responsibility laws state you must be able to financially compensate someone to whom you cause harm while driving. In general, the simplest way to accomplish this is with car insurance.

In some states, you can acquire an alternative to liability in the form of a surety bond. The amount you must obtain varies by state. A surety bond requires you to incrementally pay a percentage of the total amount, and then you would owe the balance of the bond amount if you were in an accident. Buying car insurance, in comparison, is easier for most people – and isn’t the same risk to your savings.


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