Let’s Talk About Auto Insurance: Liability Coverage

Most people know that you are required to have insurance if you drive. The most common kind of insurance that is required is called liability coverage. “Liability” coverage actually breaks down into two different types of coverage: bodily injury and property damage. Today we will be talking about the type of liability coverage that covers bodily injury. Property damage liability coverage will be discussed later.

So what is bodily injury liability coverage, i.e. liability? Well, before we get exactly into what it is, we need to talk about what liability is. Liability is “the state of being responsible for something, especially by law”. In terms of a car accident this means that the person who caused the collision is the liable party. Now, of course, some accidents are not completely one person’s fault. For example imagine two cars are driving on the outside lanes of a three lane road. Both cars try to merge into the center lane at the same time and hit each other. This is an example where no one party is 100% at fault. This is one of the reasons why it is incredibly important to call the police after a collision. When the police arrive at the scene they will investigate the crash and fill out a Traffic Accident Report (TAR). The TAR will assign fault to the parties involved either in part or full. The TAR will then be used by attorneys and insurance companies to help determine who is at fault and needs to pay who.

If you are in an accident and you are the liable party, either in part or full, your liability coverage will pay for the bodily injuries to people in the other vehicle(s).  Likewise, if you are struck by another vehicle and have bodily injuries, and the collision was someone else’s fault, then that person’s insurance will pay for your medical bills. But liability covers more than just physical injuries. Liability covers three categories of damages. The first is, of course, compensation for the physical injuries sustained, and any pain and suffering associated with your injury. This includes hospital bills, and ambulance bills, and other medical care required. The second category is lost wages. This is the amount of money that the injured person would have earned if they were able to go to work but were unable to do so because of the injuries sustained. Finally liability covers legal fees. If you are the liable party in a collision and the other party sues you, your insurer will pay for a lawyer to defend the law suit. Liability will not cover your own medical bills. Those are covered by a type of insurance called medical payments and will be covered in a blog later in this series.

Is liability required, and if so how much? Yes, this kind of insurance is required by Colorado Law. The state minimum required coverage in Colorado is $25,000/$50,000. The first number is coverage for just one person in the accident. The second number is the coverage for the accident as a whole. Let’s look at a few examples to understand how this works:

  1. Persona A has $20,000 in medical bills. Person B has $10,000 in medical bills.
    • In this case the liability coverage should cover all of Person A’s and Person B’s medical bills. This is because individually their bills are both less than 25,000 and together they are less than 50,000.
  2. Person A has $40,000 in bills and Person B has $20,000 in bills.
    • In this case liability coverage should pay Person A 25,000 and Person B $20,000. As you can see the insurer will pay out $45,000 total.
  3. Person A and Person B both have $30,000 of bills.
    • In this case the insurer will pay $25,000 each to Person A and Person B because an individual’s personal claim is capped at $25,000.

You may be wondering, what if my bills are greater than the liable person’s liability limits? Well, in this situation, another kind of insurance is going to come into play called uninsured and underinsured motorist coverage (UM/UIM). We will be discussing that kind of coverage in a blog in a few days.  Minimum liability limits vary state by state and are something to keep in mind when traveling. For example Alaska has very high liability requirements of 50,000/100,000 and a state like Florida doesn’t even require insurance coverage at all.

So the Colorado state requirements are 25/50, but can you get more? Yes, you can and likely should. There are many different options for the kind of coverage you purchase. For example you can purchase liability coverage as high as 100/300 and even more with the purchase of an umbrella insurance policy. You may be wondering, why would I pay more to buy extra liability coverage? The main reason is to protect your other assets. If you are found liable in an accident and your liability coverage cannot cover all the damages sustained by the other party, then that person has the right to sue you for the additional value of the injuries beyond what insurance covered. For this reason it is a good idea to purchase the highest liability coverage your family can reasonably afford. In the long run it is a very good idea.

Those are the basics of liability coverage as it relates to bodily injuries. Next we will talk about the other aspect of liability coverage, property damage.