What Liability-Only Insurance Covers
Liability insurance has two components:
1. Bodily Injury Liability (BI)
Covers when you're at fault: • Medical expenses: Hospital bills, surgeries, doctor visits for injured parties • Rehabilitation: Physical therapy, ongoing treatment • Lost wages: Income other people lose due to injuries you caused • Pain and suffering: Non-economic damages awarded in lawsuits • Funeral expenses: If the accident results in fatalities • Legal defense: Attorney fees if you're sued • Court costs: Settlements or judgments up to your policy limits
Typical limits format: 25/50, 50/100, 100/300, etc. • First number: Maximum per person injured ($25,000, $50,000, $100,000) • Second number: Maximum per accident total ($50,000, $100,000, $300,000) • Example: 100/300 = $100k per person, $300k per accident
2. Property Damage Liability (PD)
Covers when you're at fault: • Other vehicles: Repair or replacement of cars you damage • Structures: Fences, mailboxes, buildings, garage doors • Landscaping: Trees, shrubs, lawns • Personal property: Items in other vehicles you damage • Public property: Street signs, utility poles, guardrails
Typical limits: $25,000, $50,000, $100,000 • Single number: Maximum payout per accident • Example: $100,000 property damage liability = up to $100k for all property damage in one accident
Full liability limits example: 100/300/100 • $100,000 per person for injuries • $300,000 total per accident for injuries • $100,000 per accident for property damage
What Liability-Only Does NOT Cover
Liability insurance leaves major gaps:
1. Your own vehicle damage (NEVER covered) • Damage to your car in an at-fault accident → You pay out of pocket • Damage to your car when you're not at fault → Other driver's insurance pays (if they have coverage) • Single-car accidents (hit a tree, guardrail, ditch) → You pay entirely • To cover this: You need collision coverage
2. Theft of your vehicle (NOT covered) • Your car is stolen → You get nothing • Your car is recovered with damage → You pay for repairs • To cover this: You need comprehensive coverage
3. Weather and vandalism damage (NOT covered) • Hailstorm damages your car → You pay out of pocket • Flood totals your car → Total loss, no insurance payout • Someone keys your car or slashes tires → You pay • Tree falls on your car → You pay • To cover this: You need comprehensive coverage
4. Your own medical expenses (NOT covered by liability) • Your injuries in an at-fault accident → Liability doesn't cover you • Your injuries in a not-at-fault accident → Other driver's BI liability should cover you • Single-car accident injuries → You have no coverage • To cover this: You need Personal Injury Protection (PIP) or Medical Payments (MedPay)
5. Uninsured/underinsured drivers (inadequate protection) • You're hit by an uninsured driver → Your liability doesn't help you • You're hit by an underinsured driver → Their limits might not cover your damages • To cover this: You need Uninsured/Underinsured Motorist coverage (UM/UIM)
6. Damage when other party is at fault but uninsured • Other driver causes accident but has no insurance → Your liability doesn't apply • You can sue them personally, but they likely have no assets • Your car repair costs come out of pocket unless you have collision or UM property damage
7. Rental car while yours is repaired • Even with a covered liability claim → No rental car provided • To cover this: You need rental reimbursement coverage
8. Gap between car value and loan amount • Car is totaled, insurance pays $18k, you owe $22k → You pay $4k gap • Liability-only doesn't help (your car isn't covered at all) • Even with collision/comprehensive, you need gap insurance for this protection
When Liability-Only Is Enough
Liability-only makes sense when ALL of these apply:
1. Your car has low value (under $3,000-$5,000) • After deductibles, insurance payout would be minimal • The cost of collision + comprehensive premiums exceeds 10% of car value • Example: $4,000 car with $1,000 deductible = $3,000 max payout → Not worth paying $500/year in premiums
2. You own the car outright (no loan/lease) • No lender requiring collision and comprehensive coverage • You have full control over coverage decisions • If you still owe money on the car, full coverage is required
3. You have emergency savings to replace the car • 3-6 months living expenses PLUS car replacement cost saved • You're comfortable self-insuring the vehicle • Losing the car wouldn't create financial hardship
4. You have backup transportation • Second vehicle in household • Access to public transit, rideshare, or borrowed vehicles • Being without the car for days/weeks wouldn't disrupt your income or life
5. The car is not essential to your livelihood • You don't rely on it for commuting to work • You don't use it for business purposes • Losing it wouldn't threaten your income
Real-world example where liability-only makes sense: • Car: 2010 Honda Civic, paid off, worth $3,800 • Driver: Clean record, emergency fund of $12,000 • Situation: Second vehicle, mostly for errands • Cost comparison: - Liability-only: $650/year - Full coverage: $1,350/year - Difference: $700/year savings • Decision: Liability-only makes sense. Over 5 years, saves $3,500—nearly the car's entire value. Has savings to replace if totaled.
When You Need More Than Liability-Only
You should have full coverage (or at least additional coverages) when:
1. You finance or lease your vehicle • Required: Lenders mandate collision and comprehensive • Non-negotiable: Contract violation to carry only liability • Until: Loan is paid off or lease ends
2. Your car has significant value • Threshold: Generally worth more than $5,000-$10,000 • Why: Too expensive to replace out of pocket • Protection: Collision and comprehensive make financial sense
3. You cannot afford to replace the car yourself • Limited or no emergency savings • Losing the car would be financially devastating • Essential for work, family obligations, daily life • Insurance provides financial protection you can't self-fund
4. You live in a high-uninsured-driver area • Add uninsured/underinsured motorist coverage • Protects you when at-fault driver has inadequate insurance • States with high uninsured rates: Mississippi (29%), Michigan (26%), Tennessee (24%), New Mexico (22%) • Your liability won't help if they hit you—you need UM/UIM
5. You have significant assets to protect • Home equity, savings, investments, high income • Increase liability limits, don't just carry minimum • State minimums (often 25/50/25) are dangerously low • Recommended: 100/300/100 minimum, 250/500/100 better, umbrella policy for high net worth
6. You're in a high-risk driving environment • Heavy traffic, long commute, frequent highway driving • High accident rates in your area • Collision coverage becomes more valuable
7. You're in areas with severe weather or high theft • Comprehensive coverage is cheap: $150-250/year • Protects against: Theft, hail, flood, hurricanes, wildfires • Often worth keeping even when dropping collision
State Minimum Liability Requirements
Every state (except New Hampshire) requires minimum liability insurance:
Common state minimums (examples): • California: 15/30/5 ($15k per person, $30k per accident, $5k property damage) • Texas: 30/60/25 • Florida: 10/20/10 (PIP state—different structure) • New York: 25/50/10 • Illinois: 25/50/20
The problem with state minimums:
They're dangerously low: • Average car costs $35,000-$48,000 new • Average hospital stay costs $15,000-$20,000 • Serious injury medical bills easily exceed $100,000 • Multi-car accidents can involve $200,000+ in damages
Example: California minimum (15/30/5) in a serious accident • You cause an accident injuring 2 people • Person 1: $75,000 in medical bills → Your insurance pays $15,000, you owe $60,000 • Person 2: $50,000 in medical bills → Your insurance pays $15,000, you owe $35,000 • Their vehicles: $40,000 in damage → Your insurance pays $5,000, you owe $35,000 • Total out-of-pocket: $130,000 • Wage garnishment, asset seizure, bankruptcy risk
Recommended liability limits (regardless of car value): • Minimum: 100/300/100 for most drivers • Better: 250/500/100 if you have assets to protect • Best: 500/500/100 + $1-2M umbrella policy for high net worth
The cost difference is minimal: • State minimum liability: $350-$500/year • 100/300/100 liability: $550-$750/year • Difference: $200-250/year ($17-21/month) for dramatically better protection
Your car's age/value is irrelevant to liability needs: • Liability protects your assets and income, not your car • A 2008 Honda Civic can cause a $300,000 accident just like a 2024 BMW • As you age and accumulate wealth, increase liability—don't decrease it
Liability-Only vs. Full Coverage: Cost Comparison
National average annual premiums:
Liability-only: • State minimum: $350-$600/year • Adequate limits (100/300/100): $550-$900/year
Full coverage: • With state minimum liability: $1,100-$1,600/year • With adequate liability (100/300/100): $1,400-$2,200/year
Cost difference: • Adding collision + comprehensive: Typically adds $500-1,200/year • Varies by: Car value, age, location, driving record, deductibles
The decision matrix:
Scenario 1: Old car, low value ($3,000), paid off, good savings • Best choice: Liability-only (100/300/100) • Cost: ~$700/year • Why: Not worth paying $500+/year to protect a $3,000 car
Scenario 2: Moderate car, mid value ($10,000), paid off, emergency fund • Best choice: Liability (100/300/100) + comprehensive, drop collision • Cost: ~$900/year • Why: Comprehensive is cheap ($150-200), protects against theft/weather
Scenario 3: Newer car, good value ($22,000), financed • Best choice: Full coverage (100/300/100 + collision + comprehensive) • Cost: ~$1,600/year • Why: Required by lender, car value justifies protection
Scenario 4: Expensive car ($45,000), paid off, high income • Best choice: Full coverage (250/500/100 + collision + comprehensive + umbrella) • Cost: ~$2,200/year + $350 umbrella • Why: Car value warrants coverage, income/assets require robust liability protection
Common Mistakes with Liability-Only Insurance
Mistake 1: Carrying only state minimum liability • State minimums are inadequate for serious accidents • Fix: Increase to at least 100/300/100 • Cost increase is minimal ($200-300/year) for much better protection
Mistake 2: Dropping liability coverage on an old car • Your car's age is irrelevant to liability needs • Liability protects your assets and income, not your car • Fix: Keep (or increase) liability even when dropping collision/comprehensive
Mistake 3: Assuming the other driver's insurance will cover you • 13% of U.S. drivers are uninsured • Many others carry only state minimums • Fix: Add uninsured/underinsured motorist coverage
Mistake 4: Not having uninsured motorist coverage with liability-only • Liability doesn't protect you when others cause damage • Without collision, your only recourse is UM coverage or suing (unlikely to collect) • Fix: Add UM/UIM coverage (relatively cheap)
Mistake 5: Choosing liability-only when you can't afford car replacement • Liability doesn't cover your car under any circumstance • If losing the car would devastate you financially, you need more coverage • Fix: Keep at least comprehensive (cheap, covers catastrophic losses)
Mistake 6: Not shopping around • Premiums vary dramatically between insurers • You might save more by switching companies than by dropping coverages • Fix: Compare quotes from 3-5 insurers before reducing coverage
Mistake 7: Choosing liability-only while financing a car • Violates your loan/lease agreement • Can result in lender-placed insurance (much more expensive) • Could trigger default and repossession • Fix: Maintain required coverage until car is paid off
Frequently Asked Questions
Liability-only insurance covers bodily injury and property damage you cause to others when you're at fault in an accident. It does NOT cover damage to your own vehicle, your own injuries, theft, weather damage, or any damage to your car regardless of fault.
Liability-only is enough when your car is worth less than $3,000-$5,000, you own it outright, and you have savings to replace it. However, you should carry adequate liability limits (100/300/100 minimum) to protect your assets, not just state minimums.
If someone hits you and they have insurance, their liability coverage should pay for your damages. If they're uninsured or underinsured, your liability-only policy doesn't help—you'd need uninsured/underinsured motorist coverage or collision coverage to be protected.
No, liability insurance never covers your own car. If you're not at fault, the other driver's liability insurance should pay for your car's damage. If they have no insurance or inadequate coverage, you'd need collision coverage or UM property damage to be covered.
It depends. If your car is worth less than $3,000-$5,000 and you own it outright, liability-only can make sense—but carry adequate liability limits (100/300/100 minimum), not just state minimums. Your car's age doesn't reduce your need for strong liability protection.
Liability-only with state minimums costs $350-$600/year on average. Liability-only with adequate limits (100/300/100) costs $550-$900/year. This is significantly cheaper than full coverage ($1,400-$2,200/year), but leaves your own vehicle completely unprotected.