The most basic form of auto insurance, and the one that is required for all drivers in jurisdictions with mandatory insurance coverage, is liability insurance. This involves claims made by third parties as a result of your causing harms to them.
This involves liability claims which can be made by all forms of parties, individuals, companies, and the government. You may for instance cause damage to a public roadway which is administered by your government and they will expect that you compensate them for damages, as would be reasonable for them to do.
This part of the coverage is called public damage insurance, which is required and included in all liability policies, as well as coverage for damage to private property.
The most common claim here is damage to someone else’s automobile that is deemed to be your fault, either absolutely or proportionately. Fault is a primary concept with auto insurance and while often times accidents are deemed to be the entire fault of one driver or another, there are also instances where drivers are considered to be partially at fault, in many instances in parking lots for example, which a percentage of the blame being conveyed on each driver.
Liability auto insurance also covers damages caused to other persons, and this is why coverages are typically one million dollars or more. It’s not that you worry about causing property damage of anywhere near that extent, it’s that damage claims for personal injury can run that high or even much higher in some cases, and thus the need for the bigger numbers.
Personal Injury Coverage
How much liability insurance will depend to a large degree on how large the court settlements or judgements tend to be in that area. The United States, for instance, is famous for very large damages being awarded or settled on, and therefore a higher amount of coverage is required to be reasonably protected.
In other areas, the amounts awarded in personal injury cases may be much more modest, and a lot of this comes down to what we could call legal culture, and especially the practice of having these amounts decided by juries who may have very little constraining them and may act in large part from emotion.
In other areas, there may be guidelines in place to guide the amount of money awarded in these cases, where those injured have the onus to demonstrate they have been harmed economically, where the amount of settlements and judgements tend to be more in line with practical considerations.
This has us relying far less on subjective determinations of the amount that should be compensated for so called pain and suffering, or simply raising the amount to seek to punish the driver or to show compassion for the injured and reward an extra amount.
Medical costs can constitute a large part of these settlements, and whether or not one is covered by socialized medical care or have to rely on private health care such as the case in the United States, this can influence the size of judgements quite a bit. Even though the injured parties may be covered by private insurance, there are usually limitations on this and if the cost of the care is very high over a long period of time, this can itself influence the size of the award greatly.
With personal injury cases that end up being settled out of court, the potential size of judgements of course influences greatly the amount of these settlements, and therefore where you live and what kind of amounts of money are awarded for personal injury will influence the price you pay for liability insurance a great deal.
This is not something that people can really do much about, aside from moving to another country, but they do get to decide how much liability coverage they wish, over and above any minimums mandated by law.
Deciding on the Amount of Liability Coverage
The amount that we may want to select is going to depend in large part on what we are looking to protect, where those with greater assets having more on the line than those who have less to lose and may even be to a large degree judgement proof.
If one does not have the means to pay a large judgement or settlement, even though the other party may have won the suit, there is still the matter of having the ability to collect the money, even a meaningful amount of it, and it is common that people will not be able to pay judgements and the victory for the other side ends up not being particularly meaningful.
While liability coverage does involve more than just protection against personal injury suits, other liabilities such as property damage are pretty minimal in comparison, for example wrecking someone else’s car that is worth even $100,000 is going to be a pretty small amount given that liability coverage is several times more than this at a minimum.
What we need to look at instead is how much we may be held liable for if we injure or kill someone and it turns out that we were responsible for the injury or death on a balance of probabilities.
Even though we may be a very good driver, we never really know when this might happen to us, even though our very good driving ability will often be accounted for in the price of the coverage to a meaningful degree, as driving history is well accounted for in factoring the price of our auto insurance premiums.
The two big questions that need to be asked here is what amount we may be subject to as far as claims go and what the consequences of this would be for us. We could also say that our own assessment of how likely this would be for us based upon how well we drive and where we drive as well matters, especially if all or most of our driving is at low speeds with little or no highway driving.
It might very well be that one is an excellent driver and just drives in the city and just based upon this one may want to only seek minimal liability coverage, especially if one has few assets to protect. This is what liability insurance does actually, protecting our assets from being taken away from us due to injuries caused by negligent driving.
Why Liability Insurance Is Necessary for All
When we buy insurance, we are usually protecting ourselves, and in a real sense auto insurance protects us as well, even with liability insurance. However, the reason why liability insurance is mandated by law in a lot of countries isn’t to force us to protect ourselves, which is usually left to us to decide, it is to protect others who are subject to risk as a result of our operating vehicles on roadways.
It’s not that liability coverage is the only alternative here, and we could instead rely on drivers purchasing coverage for this themselves. Collision coverage does cover damage to one’s vehicle if the other driver is at fault but has no coverage, and people are generally protected by their own policy if they get injured as well.
The idea here is not to make sure that everyone is covered against the fault of other drivers, it’s to ensure that who caused the accident bears financial responsibility for it. Even though your own insurance company may pay for your vehicle or pay for your personal injuries, if the other person caused it, you should not have to bear this risk or suffer the consequences.
Often times people do not have collision insurance on their own vehicles, and this may be based in part on one’s driving ability and probability of being in an accident that they caused. This is a risk that therefore can be managed, but when we introduce unknown variables and now have to rely on others to drive well enough as well, we have to take on more risk, which costs us money.
It is simply not fair to make people bear the risk and costs for the mistakes of others, and this is the real reason why we have mandatory liability coverage for anyone operating a motor vehicle. This is one instance where the free market is not as efficient as we would like in assigning costs to those who should bear them, and driving a vehicle on the road involves certain responsibilities to others and legislation requires them to do so to at least a minimally acceptable degree.
There is also the matter of governments making sure that those who damage their property be capable of paying for the damages, and there are instances of even single vehicle accidents that damage public property and if the party involved cannot pay for the damages, the government is left to bear it themselves, which they don’t like to do.
Even though personal liability and public damage insurance may be required by law, there are still incidences where uninsured drivers cause damage and injuries. This is left to those who are harmed by this to bear the costs, although governments may maintain a fund to compensate people for those who cannot pay, either by being not insured or being uninsured.
As far as our own coverage, we do need to carefully examine our own needs and situation when we decide how much personal liability and public damage insurance to purchase. This does not just apply to others in vehicles or on the street, it also covers friends and family that are in the vehicle with us should they become injured.
This may therefore affect us personally as well as affect others, and does bear careful consideration. We may just want to go with the minimum coverage in some cases, but we should not just be selecting that automatically or without careful thought.