Auto Liability Insurance Explained

Last Updated on December 27, 2025

Auto liability insurance is the part of your car insurance policy that pays other people’s expenses after a crash you cause (or are found legally responsible for). If you rear-end someone, for example, liability coverage can help pay for their medical bills, car repairs, and certain legal costs—up to your policy limits.

Because liability claims can get expensive fast, most states require drivers to carry at least a minimum amount of liability coverage to drive legally. Below, we’ll break down what auto liability insurance covers, what it doesn’t, how policy limits work, and how to choose a liability limit that protects your finances—not just your license.

Key Takeaways

• Auto liability insurance pays for other people’s injuries and property damage when you’re at fault—it generally does not pay for your injuries or repairs to your own car.
• Liability coverage is usually split into bodily injury and property damage, and your policy limits control the maximum your insurer will pay on a covered claim.
• State minimum limits vary widely and are often designed to keep you legal—not fully protected—so many drivers choose higher limits like 100/300/100 (or more).
• If damages exceed your liability limits, you can be personally responsible for the remaining balance—one major reason to avoid carrying only the bare minimum.

What Is Auto Liability Insurance?

Auto liability insurance is third-party coverage. That means it’s designed to protect other people if you injure them or damage their property with your vehicle.

It is not the part of your policy that pays to fix your own car or cover your own injuries. Instead, it helps pay for the medical bills that come out of a car accident and property damage when you’re at fault.

The Two Main Types of Liability Coverage

Liability insurance is usually split into two separate coverages:

• Bodily injury liability coverage (BI): pays for injuries to other people.
• Property damage liability coverage (PD): pays for damage you cause to someone else’s property.

Bodily Injury Liability Coverage Explained

Bodily injury liability helps pay for the other party’s expenses when they’re hurt in a crash you cause. Depending on the situation and your state, that can include medical bills, lost income, and legal damages. Claims can become especially costly when pain and suffering damages are involved.

BI liability often applies when:

• You cause a crash that injures another driver, passenger, cyclist, or pedestrian.
• You lend your car to someone, and they cause an accident while driving with your permission (your policy typically responds first).
• You’re sued after a serious at-fault accident and your insurer must negotiate or defend the claim.

If injuries exceed your BI limit, you can be personally responsible for the remaining balance—which is one reason many drivers choose limits higher than the state minimum.

Property Damage Liability Coverage Explained

Property damage liability pays to repair or replace property you damage with your car—most commonly the other person’s vehicle. It can also apply to non-vehicle damage, such as fences, poles, buildings, guardrails, and other structures.

Property damage claims can add up quickly, especially when multiple vehicles are involved or newer vehicles require expensive parts and sensors to repair.

What Else Can Liability Insurance Pay For?

Many auto policies include “supplementary payments” in addition to your BI/PD limits. What’s covered varies by insurer and state, but may include items like:

• Attorney fees and legal defense costs (often provided by the insurer when you’re sued for a covered accident)
• Court costs and related fees
• Interest that accrues on certain court judgments
• In some policies and states, bail bonds or bond-related expenses (this is not universal—always read your policy)

What Liability Insurance Does Not Cover

Liability coverage is not designed to protect you or your car. Here are common expenses liability insurance won’t pay for:

• Damage to your own car after an accident — typically handled by collision coverage (or the other driver’s liability insurance if they’re at fault).
• Theft, vandalism, weather damage, animal strikes, or falling objects — often covered under comprehensive coverage (see comprehensive vs. liability coverage for a quick comparison).
• Your own injuries — depending on your state and your policy, these are usually handled by medical payments coverage, personal injury protection, and/or health insurance.
• Towing and labor costs — usually handled by roadside assistance coverage.
• Rental car costs while your vehicle is in the shop — usually handled by rental reimbursement coverage.

How Liability Limits Work

Most states express liability coverage as a three-number “split limit,” like 50/100/25. (Here’s a helpful breakdown of split limits from Investopedia.)

Those numbers usually mean:

• $50,000 bodily injury liability per person
• $100,000 bodily injury liability per accident (total for everyone injured)
• $25,000 property damage liability per accident

If a claim exceeds one of your limits, you can be responsible for what’s left. This is exactly why a “cheap” liability policy can turn into a very expensive decision after a serious accident.

Combined Single Limit vs. Split Limits

Some insurers offer liability coverage as a combined single limit (CSL). Instead of separate BI and PD buckets, you get one pool of money to apply to injuries and property damage from a covered accident.

CSL coverage can be simpler to understand, but it’s not available everywhere and may cost more. The “best” option depends on your state, the insurer, and how you want your limits structured.

Minimum Liability Insurance Requirements by State

Minimum required liability limits vary by state—and some states also require other coverages (like PIP or uninsured/underinsured motorist coverage). The table below focuses on the liability portion most drivers see as a three-number split limit.

Important: minimum requirements can change. If you want to confirm what’s currently required where you live, check your state’s DMV or insurance department. New Hampshire is the major exception because it does not require you to carry auto insurance to drive legally (though you may still need to show financial responsibility in certain situations). Read more here: Is car insurance required in New Hampshire?

Note: Florida and New Jersey are unusual because the minimum “get-legal” requirements don’t look like a standard 3-number liability limit for many drivers. Florida requires PIP and property damage liability, and New Jersey allows a Basic policy with very limited liability protection. If you can afford it, consider buying higher liability limits than the minimum.

Why Liability Coverage Matters

State minimum limits are designed to get drivers legal on the road—not to fully protect your finances after a serious crash. Medical care, legal claims, and vehicle repairs have all gotten more expensive over time, and liability claims can exceed minimum limits faster than many drivers expect.

If you only carry minimum limits and cause a costly accident, you could be sued for the difference. That’s exactly how inadequate coverage can create major financial problems—even for drivers who “did everything right” by carrying the minimum.

How Much Liability Coverage Should You Get?

There’s no single perfect number for every driver, but here are practical guidelines that usually work well:

• If you have assets to protect (home equity, savings, investments), consider higher limits like 100/300/100 or more.
• If you drive a lot (commuting, rideshare, frequent road trips), your exposure is higher—higher liability limits can be worth it.
• If you have teen drivers or multiple drivers on the policy, increasing liability limits can be a smart risk-management move.
• If you want an “expert benchmark,” some personal finance voices recommend carrying high liability limits (for example, see these Dave Ramsey car insurance recommendations).

In many cases, increasing liability limits is less expensive than people assume—especially compared to the downside risk of being underinsured. If you’re not sure what to choose, ask your insurer for a few side-by-side quotes at different limit levels and decide what fits your budget and risk tolerance.

FAQs About Auto Liability Insurance

Final Word on Auto Liability Insurance

Auto liability insurance pays for other people’s injuries and property damage when you’re at fault. It typically includes bodily injury liability and property damage liability, and your insurer may also provide legal defense on covered claims.

While state minimum coverage keeps you legal, it may not be enough auto insurance to protect your finances in a serious accident. If you can afford it, higher limits are often one of the most valuable upgrades you can make to your car insurance policy.