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® Joel Ohman

UPDATED: Oct 20, 2021

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It’s a good idea to fully understand the coverage on your car insurance policy, despite how complicated it may seem.

This certainly includes knowing what your “liability-only car insurance coverage” does for you, considering the fact that it is mandatory in nearly every state in the union.

Put simply, you should not operate a car without at least this minimum coverage. If you get caught driving without car insurance, your insurance premiums will shoot up, you’ll have to pay some fines, and you’ll be stuck with an SR22!

What is liability car insurance?

Put simply, liability insurance is insurance coverage that protects you against financial loss as a result of bodily injury and property damage you cause to others while driving your own vehicle.

Your liability car insurance coverage does absolutely nothing to pay your own medical bills or fix your own vehicle if you are the person who causes the accident.

That’s right, other people are protected, NOT you. Hence the word “liability.”

In other words, you are a liability to other drivers and pedestrians when you operate a giant hunk of metal on public roadways, even if you’re an awesome driver.

As a result, the law requires that you purchase liability car insurance in case you cause any harm to others or their possessions.

While this may sound like a “bummer,” you’d be pretty upset if another driver hit you and didn’t have this basic coverage in place.

Liability insurance is an important part of your car insurance policy. Drivers are required by law to carry the minimum liability insurance requirements on their policy in every state.

The minimum coverage limits vary by state, so the amount of your monthly premiums may increase. However, you may decide to purchase additional coverage. Any costs that exceed your liability limits are your responsibility.

If you happen to cause an accident and hurt a person or damage their car, you will be covered up to the liability limits of your policy.

There are two types of liability insurance coverage: bodily injury coverage and property damage coverage.

It’s a very good idea to understand what these liability limits mean, and how much liability coverage you should purchase. Otherwise, you could be in for a rude awakening.

Even though most states require drivers to have the minimum coverage limits of liability insurance by law, it’s a good idea to get higher coverage limits than your state requires.

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What’s not covered by liability-only insurance?

Liability car insurance coverage is only one piece of the insurance pie. Now that you know what it does for you, let’s look at what it doesn’t do. This is sometimes the best way to understand car insurance coverage and limit confusion.

Liability car insurance does not cover any of the following:

Physical Damage: Any damage to your car, whether a collision or comprehensive cause of loss, would not be covered. Your only shot at getting repairs paid for are if someone else hits you and they have insurance.

Medical Payments and Personal Injury Protection Coverage: You have no amount of medical coverage for yourself. Med Pay and PIP offer certain no-fault medical benefits. Without either of the coverage types, you are on the hook for your medical bills.

Uninsured Motorist and Underinsured Motorist Coverage: You are not covered if an uninsured or underinsured (or hit-and-run) driver hits you and you opted for “true” liability-only coverage. Without these types of coverage; you would be responsible for suing the party that insured you for reimbursement of your medical bills and repairs to your vehicle, or simply paying for the cost of damages yourself.

TIP: We say “true” liability only coverage because, technically, uninsured motorist coverage is a liability coverage. Don’t let this confuse you. Just be sure you know that your insurer will not pay your accident bills if an uninsured driver hits you and you DO NOT have uninsured motorist coverage.

In summary, not a whole lot is covered by liability car insurance.  That’s why it’s so cheap.

There’s another type of liability insurance that can protect your assets in the event you’re in an accident: a personal liability umbrella policy. An umbrella insurance policy provides coverage above and beyond what your liability car insurance covers.

When to opt for liability-only car insurance?

There are a few things you should consider prior to making the decision to drop or not even purchase physical damage coverage.

1. You will likely have to keep physical damage coverage on your auto insurance policy if you have an outstanding loan on the vehicle…regardless of the vehicle’s overall value, which drives the meat of the decision. That said, you may begin to consider removing this coverage as early as when you first pay off your car, depending on its overall value.

2. As alluded to in item “1,” your vehicle’s value is the main concern in the decision process. You need to look at what you are paying for coverage and decide if it’s worth it.

For example, if you car is worth $2,000 and you are paying $500 per year for comprehensive coverage and collision coverage, you may want to cancel the physical damage portion of your policy. You must decide if you think it’s a good idea to pay 25% of your car’s entire value to cover it. But, there’s a catch!

3. Your personal financial circumstances may dictate your decision. If you simply do not have enough money to purchase a new car in the event you total your current car, it may make sense to purchase the coverage. At least that way you may get a slightly larger chunk of cash to plunk down on a new car.

It is recommended you try to maintain at least uninsured motorist coverage and physical damage on your vehicle (and PIP or Med Pay if you don’t have health insurance). Only choose to remove or not purchase this coverage as a last resort.