One of the important decisions to make when buying car insurance is how much liability insurance to get. Most states require a minimum amount, but that’s not enough for most people. Generally, the more money and property you own, the more liability insurance you should have.
Understanding liability coverage
Liability coverage pays for the treatment of injuries and the repair of damage you cause to others in a car accident. Liability insurance doesn’t pay for your car’s repairs or for medical treatment for you and your passengers. But it’s crucial because it protects your assets from a lawsuit — assuming you have enough coverage.
The liability insurance limits are the maximum amounts the policy will pay out for an accident. You’re responsible for costs that exceed the limits.
The limits are generally expressed as three numbers, referring to the amounts the coverage will pay for bodily injury and property damage if you cause an accident. A policy with 100/300/50 liability coverage means it will pay up to:
- $100,000 for injuries per person
- $300,000 for injuries per accident
- $50,000 for property damage per accident
In some states, you can buy a policy with one combined limit for injuries and property damage per accident.
Most states require car owners to buy liability insurance. That includes no-fault states, where drivers’ personal injury protection insurance pays for minor injuries, no matter who caused the accident. Victims in no-fault states can still sue if they suffer severe injuries.
State requirements aren’t coverage recommendations — they’re just the minimum amounts needed by a person to be able to drive legally. Injuries and property damage from a car accident can easily eclipse state minimums. Imagine the costs of causing a multicar pileup with major injuries.
The right amount of liability insurance
Insurance companies and state regulators generally advise buying the most coverage you can reasonably afford for financial security.
You might not need much liability coverage if you’re young and have no assets to protect — in other words, if suing you would be pointless to the other party.
But if you own a home and have savings, you need enough liability insurance to cover their value and let you sleep at night.
If you own a home and have savings, you need enough liability insurance to cover their value.
The most liability insurance you can buy on a car insurance policy varies by company. Common maximum limits are $250,000 for bodily injury per person, $500,000 per accident and $100,000 for property damage.
NerdWallet’s car insurance comparison tool can help you price different coverage levels.
If you need more liability coverage than what a car insurer offers, consider buying umbrella insurance, which sometimes is called excess liability insurance. Umbrella insurance pays out if you’re on the hook for costs exceeding the liability limits on your car or home insurance policy.
» MORE: Understanding umbrella insurance
Adding liability coverage, whether boosting the limits on an auto policy or buying umbrella insurance, doesn’t cost that much. The more you buy, the less expensive it is to add coverage. A $1 million umbrella policy costs about $150 to $300 a year, according to the Insurance Information Institute. A second million is another $75, and a third is $50.