Explaining Why Liability Insurance Is Mandated

Liability insurance on automobiles and other vehicles is required by law in every state to protect others against injuries or damages caused by the use of the insured vehicle. That means there is no insurance protection for the owner of the vehicle, just passengers and others who might suffer losses from its use.

Liability plans protect:

• Passengers and others injured in accidents.
• Other people’s property.
• The finances of the policyholder who is liable for medical and damage costs.

Injury protection is provided for others

Auto liability coverage is mandated in every state and has three primary components that protect others. One component pays up to policy limits for injuries and the cost of medical treatment for any single person injured in an accident caused by the insured vehicle. It the policy limit is $10,000, if one person is injured in an accident involving the insured vehicle, the insurance company will pay up to $10,000 for that person’s medical costs.

When more than one person is injured in an accident involving an insured vehicle, generally, the coverage limit is double that of medical payments for one person injured. So if the limit is $10,000 for an individual, it likely would be a maximum $20,000 paid in total for medical payments for injuries to all those hurt in the mishap. If those costs are exceeded, the owner of the vehicle could be sued and held financially responsible for the additional costs not covered by the insurance plan.

Property damage is protected up to policy limits

Property damage is the final component of auto liability policies and usually is the same amount as injuries for one person. If a policy pays up to $10,000 for injuries to an individual, it likely would have a $10,000 limit for property damage. That coverage only applies to damage to other vehicles or property and not to the insured vehicle.

All liability coverage can be adjusted based on the needs of the vehicle’s owner. If the car owner has a great deal of assets and investments, carrying a higher level of protection to protect those assets generally is a good idea. Additional umbrella insurance also can be purchased to pay amount exceeding those provided by auto policies.

States mandate coverage to protect victims and vehicle owners

States require people carry liability coverage to protect their finances as well as other people and to prevent tying up courts with a great deal of lawsuits arising from accidents. If there were an accident causing a number of injuries or property damage, the resulting lawsuits and medical bills likely will wipe out any amount of cash and assets being held. But a good liability protection plan purchased at a good rate will protect homes, family finances and other assets when things already are bad enough.