Almost all states require drivers to carry liability insurance and most require a minimum amount. Liability coverage is for the damage that you do to others in the event of an accident. If you are at fault for an auto accident, your liability insurance will pay for the property damage and personal injury expenses of the other driver(s) involved in the accident, up to the limits specified by your policy. It will also pay for your legal bills if you caused the accident.

The bodily injury portion of your liability coverage applies to the damages you cause to someone else and will cover their medical expenses and lost wages. The property damage portion covers repair or replacement of items damaged as a result of the accident, such as other cars, fences, and other kinds of property. This does not include your car. Liability coverage can also pay for pain and suffering damages up to your liability limits if you are sued after an auto accident.

If your financial responsibility for damages exceeds your liability limits, you can be sued for the remaining amount. For example, if you cause $75,000 worth of damage and you have an insurance limit of $40,000, you are still responsible for the remaining $35,000. Liability coverage limits are written as three numbers, such as 30/40/10. This means that under your policy you have $30,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident and $10,000 in property-damage coverage per accident.