Professor of Marketing for the Austin E. Cofrin School of Business at UW-Green Bay | MoneyGeek
Experts’ Insights on Understanding Liability Car Insurance
Sampath Kumar, Ph.D.
Professor of Marketing for the Austin E. Cofrin School of Business at UW-Green Bay
Liability car insurance is a type of auto insurance coverage that helps protect you financially if you are responsible for causing an accident that injures someone else or damages their property. It has two components: bodily injury and property damage.
When an accident occurs, the injured party will file a claim against your insurance. Your insurance company will investigate the accident to determine whether you were at fault. If you are found liable, the insurance company will negotiate and settle with the injured party within the limits of your policy. If the damages exceed your insurance coverage limits, the injured party may sue you personally for the remainder. For instance, if the medical bills are $150,000 and your policy only covers $100,000, you may be responsible for the remaining $50,000, which can lead to out-of-pocket expenses or garnished wages.
Your insurance policy usually includes legal defense costs if you are sued. Even if the lawsuit goes to court, the insurance company will often provide a lawyer to defend you.
How do insurers calculate costs for various levels of liability coverage?
Insurers calculate the cost of liability car insurance based on several factors, including personal factors like your driving history, age, gender, location and credit score, as well as vehicle-related factors such as the make and model of your car and its safety features. They also consider the level of coverage you choose, with higher policy limits leading to higher premiums.
The risk of claims or lawsuits for bodily injury and property damage is assessed, alongside external factors like state requirements, the frequency of claims in your area and the insurance company’s overall loss experience. Additionally, discounts such as multi-policy bundles, good driving records, good student performance and completing defensive driving courses can lower premiums. All of these factors together determine the total cost of liability coverage.
How can drivers determine which type of liability coverage is best for their needs?
Each state has minimum liability insurance requirements. Ensure your coverage meets or exceeds these standards. If you have significant assets, such as a home, investments or savings, it’s crucial to have high enough liability limits to protect them in case of an accident. Think about your driving habits, vehicle type and risk factors. If you frequently drive in busy areas, have a long commute or drive a high-value vehicle, higher liability coverage might be wise to protect against potential high-cost accidents.
If you anticipate changes in your financial situation, such as purchasing a home or increasing your income, you may want to opt for more liability coverage to ensure your future assets are protected.
What tips would you recommend to people looking for the best rates on liability car insurance quotes?
To find the best rates on liability car insurance, it’s important to shop around and compare quotes from multiple insurers. Generally, having home and car insurance with the same company will save costs. Consider raising your deductible for full coverage policies, and look for discounts from bundling home and auto insurance or for safe driving and low mileage.
Maintaining a good credit score and a clean driving record can also help lower premiums. If you drive infrequently, you may benefit from usage-based insurance. Review your coverage regularly to ensure it meets your needs without over-insuring, and consider paying annually for potential savings.
This article is featured in MoneyGeek – Understanding Liability Car Insurance
