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Download the limit tracker inside our Understanding Your Policy pillar guide to document the numbers you calculate below.
Liability is the foundation of every auto policy. It protects your savings, wages, and home if you injure someone or damage their property. Yet most drivers skim over the section and hope for the best. Use this breakdown to understand what liability covers, what it excludes, and the limits you should carry.
Auto liability coverage pays medical bills, lost wages, legal defense, and property repairs for other people when you are at fault. It never fixes your car or treats your injuries, so select BI/PD limits that match your net worth and consider an umbrella policy for extra protection.
1. The two halves of liability
- Bodily injury (BI): Covers ambulance rides, emergency surgeries, rehabilitation, lost wages, funeral costs, and the attorney your insurer hires to defend you.
- Property damage (PD): Pays to repair or replace other vehicles, buildings, fences, signage, or business equipment you destroy.
Liability is strictly for other parties. To fix your own vehicle, you need collision. To cover your own medical bills, you need MedPay, PIP, or health insurance.
2. Decoding split limits
Most policies present liability as three numbers such as 100/300/50. Translate them this way:
- First number: Maximum BI the insurer pays per injured person.
- Second number: Maximum BI for everyone injured in the same crash.
- Third number: Maximum PD per accident.
If damages exceed these limits, the injured party can sue you for the difference. That is why financial planners recommend at least 100/300/100 for drivers with assets.
3. Considering a combined single limit
A combined single limit (CSL) gives you one pool-often $500,000 or $1,000,000-to use for both injuries and property damage. CSL policies cost a bit more but give adjusters flexibility when one category of damages is higher than the other.
4. How much liability coverage should you buy?
- Add up your home equity, cash, investments, and retirement balances.
- Multiply your annual salary by three. Courts can garnish future wages to satisfy judgments.
- Choose BI/PD limits that meet or exceed that sum. If you need more than 250/500/250, layer a $1-$5 million umbrella policy on top.
5. Close gaps with endorsements
Liability excludes commercial, delivery, and rideshare use by default. Ask your agent about rideshare endorsements or a business auto policy if you:
- Drive for Uber, Lyft, DoorDash, or Instacart.
- Use your vehicle to haul tools or supplies for work.
- Tow trailers that exceed the personal-use weight limits.
6. Set a reminder for annual reviews
Life changes fast. Review your liability limits at least once a year and any time you:
- Buy a home or add a teen driver.
- Switch jobs, start a business, or pick up gig-work miles.
- Take on large debts that would be hard to pay if your wages were garnished.
Treat liability limits like a financial safety net. Raise them as your wealth grows, document every endorsement, and keep a copy of the policy summary in your glove box. That way you know exactly what the insurer will pay long before you ever need to file a claim.