American Auto Liability Insurance for visiting Drivers Explained
If you’re planning on buying a car, RV, or motorcycle in the United States, you’ll need insurance. But if you’re visiting from another country, American insurance can be confusing, so we’re breaking it down for you in a three part series on American insurance for tourists.
This articles focuses on liability insurance. Liability insurance is legally required by 49 of America’s 50 states*, so of the three coverages we discuss here, you absolutely must have this one. For information on property damage insurance, which covers your own vehicle in the event of an accident that you may cause, click here. For information on emergency medical insurance, which covers your injuries in the event of an accident, click here.
American Auto Liability Insurance Overview
When you think Liability insurance, think Lawsuit insurance. (L for liability = L for lawsuit) Liability insurance protects you from harm that you cause to others, who would then file a Lawsuit against you.
There are two ways you can harm others: injuring their person or damaging their property. So liability insurance covers two things: bodily injury and property damage.
There are five key figures in a liability insurance policy: three limits, one deductible, and one premium. Let’s go over them one by one.
The first three figures in an American auto insurance policy are limits. Your liability insurance policy will pay to fix any harm you cause to others, up to the limit of the policy. Auto liability insurance policies usually contain three limits:
- Bodily Injury per person - the limit your policy will pay per injured person
- Bodily Injury per occurrence - the limit your policy will pay for all persons injured per accident
- Property Damage - the limit your policy will pay for all property damage per accident
So limits of 25/50/10 protect the policy holder against $25,000 in bodily injuries per person, $50,000 in bodily injuries per accident, and $10,000 in property damage per accident.
The fourth key figure in an American auto liability insurance policy is the deductible.
The deductible (referred to in the UK, Australia, New Zealand, and many other countries as the excess) is the amount you pay before your insurance kicks in.
For example, if you have a 25/50/10 policy with a $1,000 deductible, and you cause property damage of $5,000, you are responsible for the first $1,000 in damage and your insurance will pay the remaining $4,000.
The fifth and final figure in an American auto liability insurance policy is the premium, which is the amount you pay for the policy. Premiums can be paid monthly, but insurance companies often offer a discount if you pay for the whole policy in advance.
The higher the limits of your policy, the higher the premium you’ll pay, and the higher the deductible you agree to pay, the lower premium you’ll pay.
Putting it all together
To sum up, liability insurance covers you for damage you cause to others (remember, L for liability = L for lawsuit), and it’s a legal requirement to drive in the United States.
You will pay a premium to an insurer, who will then cover you against physical and/or bodily damage you may cause to others, up to the limits of your policy, after you have covered the deductible.
And while liability insurance policy covers you against damage you do to others, it doesn’t cover damage you cause to your own property (i.e., your auto) or injuries to yourself. For more information about those, head over to our articles on property damage insurance and emergency medical insurance.
*All American states, except New Hampshire, whose state motto is “Live free or die,” require auto liability insurance to drive legally. New Hampshire allows drivers to provide “proof of financial responsibility,” or proof of ability to cover $50,000 in damages arising from an accident, in lieu of auto liability insurance.