Car Insurance 101: What Exactly Is Liability Insurance Coverage?

Companies require liability coverage to shield themselves from claims filed by industry partners, consumers, clients, and other third parties. A prosecution can be costly. If a corporation is sued, liability support can mean the difference between the survival and demise of the business. Liability support includes two kinds of expenses linked to lawsuits: indemnity and defense.

Indemnity coverage concerns losses or reimbursements given to the plaintiff. This coverage has a limit. Your insurer will cease making payments for losses or adjustments when your policy limit has been used up.

Defense coverage concerns the price of reviewing a claim and protecting you from a trial. It comprises costs that your insurer acquires for subpoena observers, conduct statements, and authorities to witness in your defense. It also covers payments charged by a lawyer to protect you. The insurer can employ the attorney or hire them from an external firm. Most liability systems give extensive defense coverage. This means that your insurer will continue to fund the cost of supporting you until the petition or lawsuit is resolved.

What is Liability Insurance Coverage?

liability insurance coverage

Liability insurance coverage is just one component of your car insurance policy, and almost all states require it. It is further divided into two parts, BI or bodily injury liability and PD or property damage liability. Basically, these work together for covering injury and property damage that you’ve caused to another individual in the event of an auto accident.

What Car Liability Insurance Covers

The bodily injury liability component of your auto insurance plan covers death or injuries that another individual sustained in an auto accident for which you are at fault. It includes the driver, his or her passengers, pedestrians, bicyclists, or motorcyclists that you injured while you were driving your vehicle. It’s vital to note that liability insurance coverage comes with three specific amounts.

Gleaning from auto insurance providers in Illinois, these amounts would be 25/50/20. 25 is for the $25,000 limit per individual for bodily injury, 50 is for the $50,000 per bodily injury incident, and 20 is for $20,000, which is the limit for property damage. Likewise, while auto insurance plans vary from insurer to insurer, bodily injury can cover for medical bills, funeral costs in case of death, income loss, and pain and suffering provided that they’re within your limit.

Property damage liability coverage, on the other hand, covers any damage that you cause to another individual’s property while driving. In general, the property covered can include the following:

  • Vehicles
  • Buildings
  • Fences
  • Fire hydrants
  • Poles
  • Guardrails
  • Landscaping

Also, liability coverage will also help you pay for legal expenses in case someone filed a lawsuit against you due to an auto accident.

Cost of Liability Insurance Coverage

Various factors will come into play when determining the value of liability insurance coverage and your overall premium amount. Generally speaking, the following are the most common factors that insurance providers consider when determining your rates:

  1. The vehicle you own and whether it’s for business or personal use
  2. Age
  3. Location
  4. Miles you drive each year
  5. Driving history and record
  6. Whether you have a record of claims against you
  7. Previous insurance coverage
  8. Credit history
  9. Marital status
  10. Gender

In the end, insurance providers weigh these factors in different ways so it’s your responsibility to look around and work with an auto insurance provider that can offer the most reasonable rates for your particular circumstances.

Liability Insurance Exclusions

Liability insurance coverage covers third-party claims of bodily injury and property damage. However, it doesn’t provide adequate coverage for the policyholder. It’s just like a Compulsory Third Party or CTP insurance. This car insurance covers third parties, such as passengers, cyclists, pedestrians, and the other vehicle’s driver, for injuries and fatalities following an automobile accident. This kind of insurance won’t cover your medical expenses if you get hurt in a vehicle. For this reason, you (as the driver) must have personal injury protection (PIP) insurance.

PIP or no-fault insurance helps cover medical bills and lost wages after a vehicular accident, regardless of who’s at fault. This car insurance coverage also applies, even if you’re not in your car or driving. For instance, your PIP may help pay for your injuries after getting hit by a vehicle while you’re walking or when you’re a passenger in another vehicle.


Choosing the right car insurance with liability insurance coverage and add-ons is important to protect yourself from financial and legal liabilities. But make sure you deal with a trusted insurance provider that offers reasonable premiums. So, read reviews, ask for referrals, and do your due diligence to carefully research a car insurance company before signing anything.

Sam Maven writes car news stories and features on everything from consumer gadgets to popular apps.