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Property Damage Liability vs Physical Damage Coverage

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance can be difficult to grasp. Many of the terms used to express coverage sound similar but have completely different meanings.

For example, property damage liability and physical damage coverage are two of the most commonly misunderstood and confused coverage types.

While they almost sound exactly the same on the surface, the difference between the two is vast, and often mixed up by consumers.

Property Damage Is a Liability Coverage

The easiest way to clear things up is to state that property damage is a type of liability coverage.

And liability coverage always refers to damages to another person’s vehicle, property, and/or belongings that results from an accident you caused.

All states require drivers to carry at least a mandatory minimum car insurance policy that includes this coverage.

The liability limits on your insurance policy are typically expressed in the following manner: 250/100/25.

Your policy’s property damage limit is represented by the third number in the series, in this case “25.”

This means your insurance company will pay up to $25,000 for damage to other people’s property that you cause for one accident.

This is regardless of how many cars you damage. The other two numbers in the series above are explained here (auto insurance liability limits).

Physical Damage Refers to Your Own Vehicle

On the other hand, physical damage coverage refers to damage to your own vehicle.

It is further broken down into two sub-categories, including collision insurance and comprehensive coverage.

Another way to differentiate is that this type of coverage is not mandatory according to state law.

However, you are typically required to carry this coverage on a vehicle if it’s leased or you owe money on an auto loan you took out to pay for the vehicle.

Anyone who owns the car while you are financing/leasing it, referred to as the loss payee, or lienholder, will require this coverage be purchased in order to protect their interest in the car.

Their concern is that their loan/lease won’t be repaid if a car is totaled and no longer drivable.

Contact your independent agent or insurance company if you have questions or are unhappy with your current policy coverage or rate.

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