When drive a vehicle, you are creating a risk that you do damage to someone else's person or property - in other words, you're creating a risk for a liability.

Unlike collision and comprehensive (first-party) insurance, where the risk is limited to the value of your vehicle, your liability risk not really limited by anything.

You could cause a multi-vehicle accident, you could drive into a building and cause it to collapse, you could put multiple people in the hospital.

So how does auto insurance deal with this risk?

Liability Limits Overview

An insurance policy is a "contract of limited indemnity," which means that the insurer will indemnify, or pay to return to pre-accident status, the insured - up to a pre-determined limit.

You, the insured, are personally responsible for any liabilities beyond the limit of your insurance policy.

For example, if you have a property damage liability limit of $25,000, and you total someone else's $75,000 Tesla, you are responsible for the $50,000 beyond the limits of your liability insurance policy.

Bodily Injury and Property Damage Liability Limits

There are basically two types of damage that you can become liable for when driving a vehicle:

  • Bodily Injury

  • Property Damage

Property damage is relatively straight-forward, but bodily injury is slightly more complicated, as there could be one, two, or many people injured in an accident.

So auto insurance in the United States creates two separate limits for bodily injury:

  • Bodily Injury

    • Bodily injury limit per person

    • Bodily injury limit per accident

When combining those two limits with the property damage limit, US liability insurance has three limits:

  • Bodily injury limit per person

  • Bodily injury limit per accident

  • Property damage limit

Liability Limit Format

Liability insurance limits are expressed as follows:

25 / 50 / 20

Where:

  • The first number (25) represents the limit, in thousands of US dollars, that the insurer will pay for bodily injury claims, per person;

  • The second number (50) represents the limit, in thousands of US dollars, that the insurer will pay for bodily injury claims, per accident; and

  • The third number (20) represents the limit, in thousands of US dollars, that the insurer will pay for property damage claims.

Statutory Minimum Liability Insurance

Every US state requires vehicles to carry a minimum amount of liability insurance. Because this is set by law (statute), states' minimum limits are called Statutory Minimum Liability Limits.

Every US state has different Statutory Minimum Liability Limits. California's are 15/30/5; New York's are 25/50/10.

Statutory minimum policies automatically bump up to another state's limits when an insured is driving there.

For example, imagine that you have a California liability policy with statutory minimum limits and you take a road trip to New York. Your insurance limits automatically increase from California's statutory minimum limits of 15/30/5 to New York's statutory minimum limits of 25/50/10.

Common Liability Insurance Limits

Limits commonly offered by insurance companies include:

  • Statutory minimum

  • 25 / 50 / 25

  • 50 / 100 / 50

  • 100 / 300 / 100

  • 250 / 500 / 100

Everything else being equal, liability policies with higher limits cost more than liability policies with lower limits.

What Limit Should I Choose?

A helpful way to think about liability insurance limits is to focus on the property damage limit.

The American health care system is enormously complicated, and one can easily be overwhelmed trying to imagine what could lead to a $50,000 medical bill.

Instead, think about the vehicles on the road that you might cause damage to. There are many, many vehicles worth less than $25,000; there are also quite a few vehicles worth between $25,000 and $50,000; there are also plenty of vehicles worth between $50,000 and $100,000.

For this reason, we at visitor.us recommend 100/300/100 limits, which cover you against damage to all but the most expensive vehicles.

The difference in price between a 50/100/50 and a 100/300/100 is often less than $100 for a six-month policy, which means that extra peace of mind won't cost very much.

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