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: Oct 26, 2021

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One of the major downsides to owning and operating a vehicle is the associated liability. Specifically, bodily injury and property damage liability.

Liability car insurance coverage is mandatory in nearly every state in the union. Because hey, an accident could happen at any time, right? Which means there need to be varying coverage types to protect against any potential threat while on the road, especially when it comes to other human beings.

The thought goes: driving is a privilege, not a right.

And if you’re going to operate a vehicle on U.S. roadways, you’d better be able to pay for the medical and property damage expenses your negligence may cost other people, period.

For our purposes, property damage liability refers to damage you cause to another person’s vehicle, property, and/or belongings as a result of your negligence while driving a car.

Basically, any accident you are found to be at fault for causing will make you liable for the damages.

What is not included in property damage liability?

Drivers may experience some confusion when it comes to what sort of protection they need to have listed on their policy. When it comes to property damage liability, this coverage does not apply to damage caused to your OWN vehicle as a result of an accident you cause. That would fall under physical damage coverage.

You must purchase a full coverage auto insurance policy, which includes comprehensive coverage and collision coverage, in order to have your own vehicle repaired.

The difference between the two is explained here (property damage vs. physical damage).

Try to remember it this way:

Property damage liability is mandatory and covers you for damaging someone else’s stuff, while physical damage is not mandatory (unless you have a loan or lease) and serves to protect your own vehicle.

There are more risks associated with you injuring someone else or damaging their vehicle, because they can come after you in at-fault accidents where you’re the cause.

If you don’t have an auto policy that protects you against these types of claims, suddenly you are now burdened with the responsibilities attached to paying their bills.

On the flip side of the same coin, you may have a more relaxed approach to your own personal property. If the cost of repair isn’t worth it on your own vehicle, you could choose to buy another, or take public transport for a while.

However, that’s your decision, and it may be radically different than someone else’s idea of compensation. Having that financial protection may just bring you peace of mind you can’t obtain driving without coverage.

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How much do I need?

As mentioned, property damage liability coverage is part of compulsory, or mandatory, liability insurance coverage.

Each State Department of Insurance sets their own minimum car insurance requirement.

So at the bare minimum, you need to purchase at least your state’s minimum coverage limits to remain legal.

The liability limits on your insurance policy are typically expressed in the following three number format: 50/100/25.

The third number in the series, in our example that would be 25, represents the property damage liability limit, or the amount of damage per accident that will be covered.

This means your insurance company will pay up to $25,000 in the event of any one accident you are found liable for, regardless of how many cars (or property) are damaged.

That’s right, it doesn’t matter how many cars are involved in the accident. They will take that financial responsibility, within their specified limits naturally.

The maximum amount of coverage per accident that will be paid by the insurance company will be $25,000.

If the total cost of all the damages caused by you is under the property damage liability limit on your policy, you won’t have any problems.

Conversely, you’ll be on the hook if the dollar amount of damage exceeds your policy limit.

This is the main reason why you should carry the highest liability limits your budget will allow (we’re referring to your budget before you subtract your daily Starbucks run).

Contact your insurer or independent insurance agent if you’re unclear or unsatisfied with your current policy’s property damage liability limits. If your provider gives you online access to this information, you can also use this to compare the cost of this level of coverage across numerous providers.

Not only will this allow you to see if you’re being given a competitive price, but it will also let you know what your coverage options are with other insurance carriers.