Liability Insurance Basics

Liability insurance pays for damage that you may cause to other person’s property or injuries that you become legally liable due to a covered accident.  Liability insurance can also provide coverage for prejudgment interest and defense costs. Punitive damages may be excluded from your automobile insurance policy.

Car Accident Property Damage Example:

It’s a Friday afternoon the sun is shining, the temperature is a balmy 82° and your top is down on your BMW 325i convertible as you and your best friend Donovan are meandering down state Route 5 enjoying the scenery with lively conversation between two close friends.  A Toyota minivan stops suddenly in front of you as you were momentarily distracted by an off-color joke that Donovan shared with you.  You slam on your brakes, but it’s too late as you impact with the minivan. There are no injuries, but it looks like you need a new front bumper and so does the minivan.

What Happens Next?

The property damage section of your liability coverage will pay for the damages to the bumper of the minivan up to your available policy limits.  Let’s assume that your current automobile liability insurance limits are $25,000 per person and $50,000 per occurrence for injuries, and $10,000 in property damage limits.

The damage to the Toyota minivan comes to $4,713 in property damage.  Your insurance company will pay the $4,713 because you have room to spare on your $10,000 limit.

Who Pays When My Property Damage Liability Coverage Is Not Enough?

Let’s change the scenario and assume that the accident in your convertible BMW causes a chain reaction accident where you are found to be responsible for the damages on multiple cars?

Your policy will only pay a maximum of $10,000 for all vehicles. If the damages amount to $16,000 after subtracting your $10,000 property limit, you are on the hook to pay an additional $6,000 out of pocket!

In the next article we will discuss how bodily injury liability insurance works on your policy.

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