Liability coverage protects the driver of the vehicle in case there is bodily injury or property damage to another entity or person due to the drivers fault. This type of protection does not provide coverage for the damage to the vehicle or the driver but to the aggrieved party who is the victim of an accident caused due to the fault of the policyholder. Therefore it is less costly compared to a pure auto insurance or vehicle insurance policy.

• Liability coverage can be compared to professional liability coverage which is common among people who are in high-risk professions such as medicine and law. For example if a patient dies under the care of a surgeon then the surgeon is protected (financially or otherwise) if the family of the deceased decides to sue. Similarly in auto insurance if a driver damages a property or injures someone with his vehicle then the driver would be covered.
• If for example a driver collides with a telephone booth and damages it then the insurance will pay any cost incurred to repair or restore it. Furthermore if there is any loss of profits due to the accident to any third party then such loss is also compensated. The insurance also covers any bodily injury to any third party caused due to the damage. However in some cases the third party must exhaust their own insurance (if any) before the liability coverage kicks in.
• Liability coverage can be divided into two basic types: combined single limit and split limit. In combined single limit coverage both bodily injury as well as the physical damage done to the property is covered under one combined limit. Payments for the damages to the other driver’s car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.
• In a split limit liability coverage the policy splits the coverage into property damage and bodily injury separately. The payments for bodily injury will be paid out under the bodily injury coverage and any property damage is paid under property damage coverage. Furthermore, bodily injury coverage can be split into two types of payments: maximum payments per person and maximum payments per accident.
• Liability coverage is strongly recommended since the cost of legal proceedings and the punitive damages in case of an accident may be very high. Moreover, the driver would not have to pay for the damage done directly to a person or entity in case of a genuine mistake which led to the accident. It is important to remember that liability insurance does not cover your vehicle or your life. It only covers for third party losses or loss arising due to damage to a property that is not the driver’s possession.

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