(This is the first in a series of articles exploring common coverages on California auto insurance policies. Check back with our blog regularly, or follow us on Twitter or Facebook to be notified when the subsequent articles are published.)
What is liability insurance on an auto policy? Liability is the amount that the insurance company will pay to settle claims against you if you are found to be at-fault for an accident. Try to contain your excitement as we address this most exciting coverage! (Uh oh, here comes the sarcasm police… Bear with me though because understanding this coverage is critical to making sure you are properly covered.)
Liability coverage is the most common of all coverages because you have to have it, by law, or unpleasant things will happen like the suspension of your registration or even your license. If you have an accident (even if not your fault) and you don’t have insurance you will lose your license for a year. Imagine that, not being able to drive for a year… a whole year… a whole loooong year of hoofing it or bumming rides from your buddies or family members. And don’t even think about driving on a suspended license; unless you are Lindsay Lohan, then go ahead. (Someone has to keep TMZ on the air.) Driving on a suspended license is a major violation, on par with much more ominous major violations like reckless driving or even a DUI.
However, liability isn’t just the law, it’s a good idea. (See what I did there?) If you have assets like a home or retirement savings or even a job, you need liability insurance to protect yourself from lawsuits if you cause an accident. (“But I don’t have accidents” you say. Nobody ever thinks they’re going to cause an accident… That’s why they are called accidents… Otherwise they would be called “on purposes”…) Your liability insurance is the only thing standing between you and Larry H. Parker coming after you, your house, your retirement, your wages and your dog. (Ok, he doesn’t want your dog, he just wants it to bite his next client.)
How much coverage do you have? Well, look at your auto policy, 99.9% of the time the liability is the first coverage listed. Typically, it is broken down into Bodily Injury Liability and Property Damage Liability.
Bodily Injury Liability is the maximum liability limit the insurance company will pay to settle claims against you in the event that they find you to be legally liable for an accident that you were in. It is usually indicated how much they will pay per person, followed by maximum they will pay for all claims resulting from a single accident.
Property Damage Liability indicates how much they will pay for all property damaged to other people that you caused in the accident. For example, if you hit a pole, it pays for the pole. If you hit another car, it will pay to fix or replace the other person’s car as well as pay for them to rent a vehicle while their car is out of commission as a result of the accident.
“So how much liability insurance do I need?” you ask. You ask a really good question, Mr./Ms. Random Internet Reader. Typically, we recommend you carry enough to cover your assets (meaning your home equity, your savings and anything else that you could be forced to liquidate after a judgment) plus a year of your income. The idea is to carry enough that if you cause an accident or hit a pedestrian, the other guy’s attorney will settle for your insurance instead of trying to go after you personally.
If you should find that your liability needs exceed $250,000 you should look into adding a Liability Umbrella policy which adds $1,000,000 or more liability on top of all of your other policies on your cars, your home, your boat, your motorcycle and even your business. For all that extra coverage, they start at only about $150 per year.
Still with me? Good, because I know this stuff is… just… riveting… Seriously though, as dry of a subject as this can be, it is quite important because a greater exposure exists for liability than any other coverage with the possible exception of Uninsured Motorist (which we will cover in a future article). n as a result of the accidentit another car,
As with any insurance coverage, you alone are responsible for determining the amount of coverage for yourself. Fortunately, that does not mean that you are alone in having to evaluate your needs. Everybody’s situation is unique but you can rely on your agent to help you evaluate your needs and suggest the proper liability limits to cover those needs.
Also, if you have any questions that we can help you with, feel free to contact us through our web site.