Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 25, 2021

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Car insurance can be difficult to comprehend for a lot of people, especially given the amount of options that are offered by numerous companies. Nonetheless, it’s mandatory in nearly every state in the Union, so we have to buy it. Understanding the basics should be something everyone makes time for, even in their busy lives. That way, when it comes time to sit down and go over costs and types of coverage, it’ll be a lot easier to make an informed decision. You don’t want to suddenly be involved in a jumble of claims, having to pay out for medical costs for an injured party, or the cost of repairs to other vehicles. All of this can happen in the blink of an eye if you get into an accident and don’t have any sort of protection.

Let’s start by pointing out that liability coverage on an auto insurance policy is designed to indemnify an “injured” party as a result of their negligence during the operation of a motor vehicle.

That’s insurance speak for you causing an accident, which makes you the at-fault driver. And it only gets worse if you’re an uninsured driver. It’s much better in these scenarios to have some sort of financial protection.

You can obtain coverage that will help you in a number of scenarios. The injuries sustained by an individual could be bodily injury, which will be discussed here, and/or property damage.

For example, if you cause an accident and hurt the other driver and/or damage their car, they are going to expect some money in terms of compensation for their medical expenses, and any costs associated with fixing their vehicle. If you have bodily injury liability coverage, that will cover the cost of any sort of harm that might befall the other party.

How does bodily injury make up half of liability insurance?

Liability insurance (the mandatory piece of car insurance) is split into two basic types of coverage.

“Bodily Injury,” referred to as “BI,” and Property Damage, referred to as “PD.”

Having this basic coverage ensures the insurance company will defend you in court and pay (up to your policy limits) for any damages resulting from an accident you cause (also referred to as “found liable” for or “at-fault” for).

So what is included in bodily injury coverage? Quite a bit actually, which as far as liability policies are concerned, makes it extremely lucrative.

Having a bodily injury liability policy includes: bodily harm, sickness, or disease, including required care, loss of services and funeral costs in case of death. Shocking to see it all laid out, but these are all potential consequences of getting into an accident while behind the wheel.

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What would an example of bodily injury look like?

Below is an extreme example that illustrates why people need bodily injury liability coverage as part of their policy, intended to outline how all parts of the definition may come into play.

Imagine you cause a car accident with a vehicle carrying toxic chemicals.

You are clearly at-fault, so there is no question that your insurance will be paying for all resulting damages.

The driver of the vehicle you hit suffers from a broken arm, but worse, is exposed to the chemicals he was carrying, as they spilled into the cab of his truck. Everything below would be covered if you have bodily injury coverage.

Bodily Harm – The cost of surgery to repair the bodily harm (broken arm and chemical burns) will be covered by this provision.

Sickness or Disease – What if the truck driver becomes sick (even well into the future) as a result of the contact with the toxic chemical? This is covered under the “sickness” portion of your BI coverage.

Required Care – Perhaps the driver also requires full time care by a home nurse for two months while recovering. You are covered for this as it pertains to the “required care” portion of the definition.

Loss of Services – The truck driver may have been the sole breadwinner in his family. His income has ceased as a result of your negligence. “Loss of services” will provide for his lack of income.

Death – If the truck driver were to die as a result of the accident, your insurance policy would pay for the resulting expenses and any judgment against you as a result of a lawsuit.

Situations similar to the above, while on the extreme side for bodily injury, are not unheard of. People can be seriously injured when caught in an accident, and even if it’s not as heinous as being exposed to toxic chemicals, any sort of mental or physical damage dealt is still a tragedy. Be advised, even though some policies have minimum limits, others might have a maximum limit as well.

This case is a great illustration of the argument for carrying the highest bodily injury liability coverage your budget can afford. The higher the limits, the better your chance of being covered should you be at fault in an accident.

Remember, your insurance company will pay damages you are liable for if you cause an accident, but only up to the policy limits. Make sure that you have the highest limit you can while staying in budget, to be able to cover any claims that might come your way.

If the situation above occurred and you had no car insurance, or low liability limits, you would be on the hook for any damages above your policy threshold. That includes medical costs, paying out if the other person has a loss of income, and the cost of repairs for the vehicles involved.

Additionally, the case for carrying Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage is evident in this example as well.

In the scenario above, the truck driver would want to have UM and UIM in the event the liable driver had no insurance or low liability limits.

Just because the “at-fault” party loses a court case and owes money does not mean they will have the ability to pay it, which could result in you not receiving the best care available.

Gather insurance quotes and/or contact you insurance company or independent agent if you’re not clear on the coverage you have, or if you want to make changes to your policy. As we mentioned in the beginning, this should definitely be something you take some time and do research on. Whether that’s on your own, or talking with a licensed agent, getting more information on all the various levels of liability coverage will do nothing but be a massive help to you.