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Liability car insurance price

What is 'Liability Insurance'

Liability insurance is any insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence. 

Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.

BREAKING DOWN 'Liability Insurance'

Liability insurance is critical for those who may be held legally liable for the injuries of others, especially medical practitioners and business owners. A product manufacturer may purchase product liability insurance to cover them if a product is faulty and causes damage to the purchasers or any other third party. Business owners may purchase liability insurance that covers them if an employee is injured during business operations.

Various Types of Liability Insurance

Business owners are exposed to a range of liabilities, any of which can subject their assets to substantial claims. All business owners need to have in place an asset protection plan built around available liability insurance coverage. Here are the main types of liability insurance:

Employer’s liability and workers' compensation is a type of mandatory coverage for employers, which protects the business against liabilities arising from injuries or the death of an employee.

Product liability insurance is for businesses that manufacture products for sale on the general market. Product liability insurance protects against lawsuits arising from injury or death caused by their products.

Indemnity insurance provides coverage to protect a business against negligence claims due to financial harm resulting from mistakes or failure to perform.

Director and officer liability coverage is for a business that has a board of directors or officers, with the insurance covering them against liability if the company is sued. While a corporation by definition offers some amount of personal protection against liability to employees and directors, some companies choose to provide additional protection to those key members of the executive team.

An umbrella liability policy is a personal liability policy designed to protect against catastrophic losses. Generally, umbrella liability coverage kicks in when the liability limits of other insurance are reached.

Commercial liability insurance is a standard commercial general liability policy (also known as comprehensive general liability insurance) that provides insurance coverage for lawsuits arising from injury to employees and public, property damage caused by an employee and injuries suffered by the negligent action of employees. The policy may also cover infringement on intellectual property, slander, libel, contractual liability, tenant liability and employment practices liability.

The comprehensive general liability (CGL) policy is tailor-made for any small or large business, partnership or joint venture businesses, a corporation or association, an organization, or even a newly acquired business. Insurance coverage in a CGL policy includes bodily injury, property damage, personal and advertising injury, medical payments, and premises and operations liability. In the case of lawsuits, insurers provide coverage for compensatory and general damages; punitive damages are generally not covered under the policy, although they may be covered if they are permitted by the jurisdiction of the state in which the policy was issued. The amount of risk associated with the business and the size of the business determines the total coverage.

The policy provides compensation for defending or investigating a lawsuit; court costs including attorneys' fees, police report costs and witness fees, any judgment or settlement resulting from the lawsuit, medical expenses for the injured persons, etc. Here, insurers retain the right to defend any suit against the insured company arising from bodily or property damages. 

Closing the Gaps in General Liability Insurance

Commercial general liability insurance protects against most legal hassles, but it won't protect directors and officers from being sued or protect against errors and omissions. For these special cases, you need specialized policies. Below, are lesser-known liability insurance policies that are worth considering for your professional coverage needs.

Errors & Omissions (E&O) Liability Insurance

  • What it covers: Errors & Omissions policies offer insurance coverage for lawsuits arising from rendering negligent professional services or failing to perform professional duties. Lawyers, accountants, architects, engineers, or any business providing a service to a client for a fee should purchase this form of insurance.
  • Coverage: Usually, the coverage includes legal, judgment and settlement expenses up to the limit of the policy. Coverage is offered as per the risk exposures of the insured, as some professionals have more potential exposure than others. Coverage typically starts at $1 million and may have a deductible of $1,000 to $25,000 per claim.
  • Exclusions: Common exclusions include claims arising from criminal, fraudulent or dishonest acts, bodily injury or property damage, employment-related claims and punitive damages.
  • Other considerations: Factors influencing insurance cost include location, class of business and claims experience of the individual and the industry. These policies are offered on a claims-made basis, in which claims must be made and reported during the policy period. E&O policies have a retroactive date wherein the insurer will not cover claims arising out of acts committed before the retroactive date. Retroactive coverage is available but comes with higher premiums. Most claims-made policies allow individuals to buy "tail coverage." This extended reporting period covers claims made after you discontinue your professional liability coverage, often because of retirement. The main purpose of tail coverage is to protect the individual from claims that occurred during their active professional, practice but were only reported after they retire or quit practicing. If an E&O policy is canceled and the extended reporting period coverage is not bought, then the entire coverage stops. In many cases, depending upon the policy terms, the insurer may have a duty to defend the entire claim, even if it includes non-covered allegations against the insured. However, the insurer is not obligated to identify the insured for a settlement, verdict or judgment based upon non-covered allegations—just to continue in the overall providing of legal defense.

Directors & Officers (D&O) Liability Insurance

  • What it covers: The policy provides protection to directors and officers of large companies against legal judgments and costs arising from unlawful acts, erroneous investment decisions, failure to maintain the property, releasing confidential information, hiring and firing decisions, conflicts of interest, gross negligence and various other errors.
  • Coverage: There are three main types of directors and officers liability coverage: Coverage A, B, and C (detailed below). The minimum policy limits of liability are $1 million or even $5 million, which is used for defense expenses, expenses of a claim and damages, judgments and settlements expenses. The $1 million limit is per policy and is not shared among individual policies.
  • Exclusions: Most D&O policies will exclude coverage for fraud or other criminal acts. A compromise is the "segregate clause" in many D&O policies, which provides coverage for the company and other innocent parties that might be dragged into a lawsuit due to criminal actions of another company director. Other typical exclusions are coverage for claims arising out of prior acts, punitive damages, and bodily injury or property damage. However, punitive damages may be covered as per the jurisdiction of the state in which the policy was issued.

Coverage A: This is a personal/employee coverage that covers past, present, and future directors and officers to help them defend themselves against claims alleging a wrongful act and the personal liabilities they encounter for their acts. A company may not be able to indemnify its D&Os directly because either it is not permitted by law, or by company bylaws.

Coverage B: This is corporate coverage for the company to the extent that it can or may be permitted to indemnify its directors and officers for claims against them; however, the company is not covered for its own liability. Therefore, during a claim the company receives the compensation; in turn, the company then reimburses the amounts to directors and officers.

Coverage C: This is entity coverage wherein the company is insured against securities claims. Lawsuits naming directors and officers along with other parties are common. The coverage provides protection to the company for its own liabilities in such a situation. Entity coverage basically renders allocation (the portioning off of blame) unnecessary for securities claims. Additionally, D&O policies may be composed of extensive allocation clauses that force the parties to negotiate an allocation agreement. In case both parties are unable to reach an agreement, the policy may provide a default or force the parties to accept arbitration.

Other Considerations: Factors such as the size and form of the company, location, mergers and acquisitions, industry type and loss experience determine the premium rates in a typical D&O policy. It is important to note that the insurer does not have the duty to defend the directors and officers. Many insurers allow deductibles if they can identify the individuals named in the legal suit. D&O policies are offered on a claims-made basis; in other words, claims must be made and reported during the policy period. Though, the insurer holds the right to oversee the defense and approval of defending strategies, expenditures, and settlements.

Many insurers also include employment practices liability coverage in the D&O policy. The coverage may not be as comprehensive as a traditional stand-alone policy and may offer relatively less coverage.

Nevertheless, certain types of companies are protected under safe harbor statutes. For example, some states have provisions that protect directors of non-profit companies from losses. But safe harbor statutes do not reduce the necessity for insurance—the provisions only protect the individual from a final adjudication but not from a suit being filed.

When Does it Make Sense to Buy Personal Liability Insurance?

Personal liability insurance policies are purchased primarily by high-net-worth individuals or those with sizable assets, but this type of coverage is recommended to anyone with a net worth that exceeds the combined coverage limits of other personal insurance policies, such as home and auto coverage.

In short, personal liability insurance makes sense for individuals who have a higher-than-average risk of being sued, such as landlords.

Homeowners insurance covers liability claims from accidents that occur on a policyholder's property, but only to a specified limit. Homeowners facing fees beyond that amount could face financial disaster.

Commonly called an umbrella insurance policy, personal liability insurance makes payments on the policyholder's behalf in cases of property and auto accidents, as well as situations that involve libel, slander, vandalism or invasion of privacy. The policy also covers injuries that occur at secondary residences or seasonal homes, within recreational vehicles, on the premises of rental properties, or on a boat or watercraft owned by the policyholder.

The cost of an additional insurance policy doesn't appeal to everyone, although most carriers offer reduced rates for bundled coverage packages. Personal liability insurance is considered a secondary policy and may require policyholders to carry certain limits on their home and auto policies, which may result in additional expenses.

 

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Read the Spanish version: Conceptos Basicos sobre Seguros de Carros

Besides protecting you financially, car insurance is a social responsibility. Driving without insurance or the ability to pay for the damages you cause in an accident puts others at financial risk.

All states except New Hampshire require car owners to prove they have the financial ability to cover liability costs if they cause an accident, and most require they do so by carrying auto insurance. New Hampshire requires drivers to prove financial responsibility after an accident.

An auto insurance policy contains six main types of coverage. Depending on where you live, some are required and some are optional.

Suncorp comprehensive car insurance policyCar insurance is comprised of the following coverages:

  1. Bodily injury liability
  2. Property damage liability
  3. Medical payments (MedPay) or Personal Injury Protection (PIP)
  4. Collision
  5. Comprehensive
  6. Uninsured/Underinsured motorists coverage (UM/UIM)
  7. Extras, like roadside assistance

When people talk about having “full coverage” they generally mean having liability, collision and comprehensive.

Let’s look at each coverage type and help you figure out if you need them.

Liability insurance

Liability coverage pays for the damage you do to others. It’s written as three numbers, such as 20/40/10. That translates to $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident and $10,000 in property-damage coverage per accident.

It also pays for your legal bills if you cause an accident.

Bodily-injury liability will pay for others’ medical bills and lost wages when an accident is your fault, except in “no-fault” states, where your own Personal Injury Protection (PIP) coverage would pay for your injuries.

Property-damage liability pays to repair or replace property that you destroy. This includes other cars or property, such as fences.

States have set minimum limits of car insurance you must buy, but you may find them woefully inadequate. If you cause a major accident you’ll quickly exhaust your limits – and be personally on the hook for the rest.

If you cause $65,000 worth of damage and have an insurance limit of $40,000, you're responsible for the remaining $25,000 and could be sued for it.

Liability insurance has no deductible.

Collision and comprehensive insurance

Unlike property-damage liability, collision coverage pays to repair your own vehicle in the event of an accident. Your collision claim check will be reduced by the amount of your collision deductible.

Cooling off period insurance carYour car is considered "totaled" when the repair costs exceed a certain threshold of the car's value, such as 70 percent. At that point, the insurance company will tow away the car to the salvage yard and offer you the actual cash value of your car, minus the deductible.

To keep your premium costs down when you buy collision coverage, you can raise your deductible. The higher your deductible, the lower your premium. But remember, you'll have to pay that amount out of your pocket.

Comprehensive coverage pays for damage to your car that isn't due to car accidents. That includes theft, fire, vandalism, natural disasters and collisions with animals (such as hitting a deer). Damage to your windshield may be covered under your comprehensive coverage as well. In some states, comprehensive coverage includes glass repair and replacement with no deductible, but it varies from state to state. Ask your agent about the specifics when you purchase your policy.

While neither collision nor comprehensive coverage is required by any state, your lender (if you are financing your car) may require that you carry this coverage until you have paid for your car in full. After your car is paid off, you can drop collision and comprehensive, although you may want to maintain the coverage to protect your own investment in the vehicle.

Medical Payments and Personal Injury Protection

Medical payments (called MedPay) coverage pays for the medical expenses suffered by you and your passengers after an accident. You're also covered for injuries if you're driving someone else's car or from injuries suffered if a car hits you. MedPay will pay no matter who caused the accident, although if someone else is at fault your insurer may seek damages from the other party.

States that require PIP coverage

Florida

Hawaii

Kansas

Kentucky

Massachusetts

Michigan

Minnesota

New Jersey

New York

North Dakota

Pennsylvania

Utah

Source: Insurance Information Institute

Personal Injury Protection (PIP) coverage pays for medical expenses and lost wages for you and your passengers who are injured in an accident. It also covers funeral costs. PIP is required in 16 states.

Do you need MedPay or PIP? If you have good health insurance and disability insurance, you can skip PIP or buy only the minimum amount if it's required.

Depending on your state, you may be able to buy just one or both of these coverage types.

Uninsured/underinsured motorist coverage

Uninsured motorists (UM) coverage pays for your medical bills if an uninsured driver strikes your car or if you're a victim of a hit-and-run. According to the Insurance Information Institute, UM coverage is required by law in 20 states and the District of Columbia: Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Vermont, Virginia, West Virginia and Wisconsin.

Similarly, underinsured motorists (UIM) coverage kicks in when someone causes an accident but doesn't have enough insurance to cover all medical bills. In that case, the at-fault person's insurance pays out to its maximum and then your UIM coverage pays for the remaining bills, up to your own limit.

UM and UIM also pay for pain and suffering claims. In some states you can also buy uninsured motorist property damage (UMPD) to cover property damage.

Car insurance extras

A variety of extras are available. Just remember that making a claim for any of them, like towing, goes down as a claim on your record.

  • Rental reimbursement pays for a rental car when your vehicle is damaged or stolen. Check for the per-day dollar limits and overall maximum to make sure you're getting a good value for your premium dollar.
  • Towing and roadside assistance coverage pays for fees due to vehicle breakdowns.
  • Gap insurance for a new vehicle pays the difference between the actual cash value of the vehicle and the amount left on your car loan if your vehicle is totaled.

Car insurance rates

Car insurance companies expend considerable time and effort deciding how to price policies. The factors usually used are:

  • Your address.
  • Your driving record.
  • Your credit (except where state law bans the use of credit information in insurance pricing).
  • Your past claims.
  • Your vehicle.
  • Your daily commute and/or annual mileage.

Other pricing factors also come into play, such as whether your car will be parked in a garage when you’re home.

Types of high-risk car insurance

A poor driving record can send you on an unpleasant insurance journey for years. You may be forced into alternate policy types until your record improves, such as:

  • SR-22 and FR-44. The dreaded SR-22 and FR-44 are insurance certificates that prove to your state that you have auto insurance. You may be required to get one if you’ve gotten a DUI, reckless driving conviction or were caught driving uninsured. Not all insurers will supply an SR-22 or FR-44 so you may have to make some calls or do research online.
  • Non-standard policies. If you’ve racked up a bunch of accidents or tickets, insurers may judge you as “high-risk.” This means you’ll pay substantially more for car insurance until your accidents and violations fall off your record. Many insurers sell high-risk policies.

Where to buy car insurance

It’s easy to get car insurance quotes, and comparing prices from multiple insurers can save you hundreds of dollars. Even if your driving record is less than stellar, shopping around can save you money.

You can get quotes from:

  • Local insurance agents.
  • Sites that provide quotes from multiple insurers.
  • Directly from car insurance companies.

Insure.com’s annual customer satisfaction study can help you find the best car insurance companies.

In addition, many state insurance departments release annual reports showing the number of consumer complaints against each insurance company that does business in the state. Check your state insurance department’s website.

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Car insurance groups guideMost states' laws require drivers to buy two types of liability car insurance coverage in order to operate a vehicle on the roadway.

  • Bodily injury liability car insurance pays the medical bills of individuals you are found liable for injuring with your car.
  • Property damage liability car insurance pays to repair or replace cars or other property that you hit with your vehicle.

What does liability car insurance cover?

Bodily injury liability (BI) pays, up to your policy limits, for injuries or death that you (the policyholder), or other drivers covered by your car insurance policy, are found responsible for after a motor vehicle accident. Policy terms vary but typically bodily injury liability coverage will pay, up to your policy limits, for:

  • Medical expenses
  • Funeral expenses
  • Loss of income
  • Pain and suffering
  • Legal defense if a lawsuit results from the auto accident

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Policy limits for bodily injury liability are per person and per accident and coverage is written as such. For example, $25,000/$50,000 means that the maximum payout per person is $25,000, and the maximum payout for all people injured in one accident is $50,000. This coverage may also be simply written as 25/50. Bodily injury liability does NOT cover your injuries, only the injuries of others that you are liable for. For your personal injuries to be covered, you would need coverages such as personal injury protection (PIP) or medical payments coverage (MedPay).

Property damage liability (PD) pays, up to your policy limits, for damages to someone else’s property that you (the policyholder), or other drivers covered by your car insurance policy, are found responsible for after a motor vehicle accident. Property damage typically is damage to another car, but property damage liability also covers damages you may cause to someone’s house, tree, fence, guardrail, pole, etc.

Property damage liability provides you with legal defense if another party files a lawsuit against you regarding property damage that resulted from an auto accident. Property damage liability does NOT cover in any way damages to your own vehicle. For such coverage, you need collision coverage and comprehensive coverage.

Is liability car insurance mandatory?

Yes, in most states bodily injury liability and property damage liability are required as part of the minimum auto insurance coverages you must carry as a car owner. Each state has its own state car insurance requirements. You have the option of raising your liability limits, which is strongly encouraged in many cases.

Car insurance companies normally require that you carry the same level of liability coverage on each vehicle listed on your policy. In some states, you must carry the same liability limits on all cars that you own. Even if the state does not require this, some insurance companies will.

A few states do not require bodily injury liability coverage because they have what are known as no-fault laws. Under those rules, drivers must carry what is known as personal injury protection to pay for their own injuries or those of their passengers. Once those limits are exceeded, you are personally liable for the costs of treating the injuries you cause.

Even in states with no-fault laws, most people buy bodily injury liability insurance.

Recommended limits for liability car insurance

In many states the legal minimum is not enough to pay for serious injuries or to replace a late-model car. It is only enough to drive legally. Buy the minimum only if you have no savings or home to shield from lawsuits.

The Insurance Information Institute (III) and other insurance industry experts recommend motorists carry bodily injury liability coverage of $100,000 per person and $300,000 per accident (referred to as 100/300 coverage). For property damage liability coverage, $50,000 or above is suggested. If you can afford higher limits, that is even better for the protection of your assets. Liability insurance beyond these amounts tends to be very inexpensive.

What happens if I don’t have liability car insurance?

If you don’t carry liability and the state requires it, then penalties can be handed out, such as fines and suspension of your license, and/or vehicle registration.

Also, without bodily injury liability and property damage liability coverage on your car insurance policy, you will be held personally responsible for any injuries or damages you cause to others in an auto accident. This could mean you will be forced to liquidate property, savings and other assets in order to pay for a judgment against you.

If you do carry bodily injury liability coverage, but with low limits, you still could be putting yourself at risk financially, since if you cause a serious accident where injury expenses exceed your limits you can be held responsible for the amount above your limits.

The same applies to property damage liability insurance. Every state requires that you take financial responsibility in the event of an accident. If you have very low limits on your property damage liability coverage, you are personally liable for the amount over and above what your insurance pays.

Can you use your liability car insurance on your own car?

Your own liability coverage cannot ever be used to pay for damages to your own vehicle or to recoup its actual cash value (ACV) if your car is totaled in an accident.

You can’t make a property damage liability claim against yourself for your own property. For instance, if you backed into your mailbox with your car, you can’t make a liability claim with your car insurance company for the damaged mailbox or your car since both are your property.

Or, if your spouse runs into your vehicle with his car, you normally can’t make a claim against the liability coverage on his car. Car insurance policies are usually written so that liability coverage protects members of your household against claims brought by people who are not part of your household.

If you have only liability insurance, your vehicle isn’t covered in any way. If you’re in an accident but not at-fault, then you can use the at-fault party’s property damage liability to make a claim for your vehicle’s damages, or its ACV, if your car is a total loss.

To have coverage for your vehicle when you’re the one at-fault in an auto accident, you must have collision and comprehensive coverage.

For accidents with other vehicles or objects, you’d use collision coverage to pay for your damages or ACV. Comprehensive insurance covers damage to your car from fire, floods, hail, vandalism, animal strikes and also covers theft.

Determining a liability claim from a collision claim

Both property damage liability and collision insurance pay for damages to cars damaged in an auto accident but are claimed differently.

Your liability coverages – property damage and bodily injury – protect you when someone files a claim against you for an accident you caused.

Your collision covers your car for damages it receives when it hits, or is hit by, another vehicle or object, regardless of fault.

So, you can file a claim against your collision coverage for any damages your own car sustains, but the other driver in an accident you caused would file a claim against you that would be covered by your liability insurance.

Collision also differs from property damage coverage because it comes with a deductible. A deductible is the amount you must pay out of pocket before your insurance benefits kick in.

Thus, if your car’s damages are $1,000 and your deductible is $500, your collision coverage will only pay $500 toward the cost of repairs – and only after you first pay out your $500.

Your car insurance company will pay for the other party’s repairs through your liability coverage without a deductible being due.

Will my full coverage car insurance cover an accident I had while I was driving a car owned by a friend, who only had liability insurance?

Car insurance follows the car, not the driver. Your comprehensive, collision and liability insurance covers only your own car; they don't extend to other vehicles and will not cover your friend's vehicle or become secondary insurance behind another vehicle's primary insurance. Your friend's liability coverage would be "primary," and your liability coverage would be "excess or secondary" to the liability coverages.

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