Liability Insurance – The Basics
Liability insurance provides coverage to people involved in a car accident who were not the cause of the collision. The liability insurance of the driver who caused the accident, known as the at-fault driver, should help to cover treatment for the injured parties that were not at-fault.
Essentially, automobile insurance, or liability insurance, protects you from having to potentially pay out-of-pocket for another driver’s damages. In other words, liability insurance helps pay for damages that you cause. Therefore, this coverage will not cover or pay for your own injuries or property damage if you are the at-fault driver. This article will provide an overview of liability insurance in North Carolina.
Is liability coverage required and who does it cover?
North Carolina law requires that you carry liability insurance on all of your registered vehicles. Driving without this insurance can result in a hefty fine and/or suspension of your driver’s license. North Carolina requires all drivers to have insurance in order to ensure that drivers injured by the negligence of another will be able to seek some amount of compensation for their injuries and damages.
Liability insurance policies must cover both property damage and bodily injury. Liability insurance will cover those who are considered “insured drivers.” Essentially, this type of insurance covers the owner of the vehicle, family members, and any person using the vehicle with the owner’s permission. In other words, if a driver with permission is operating your vehicle and acts negligently, causing an accident, your liability insurance will likely cover the damages to the innocent driver (up to the policy limits).
What are policy limits and are there any requirements in North Carolina?
Your liability insurance will only pay up to the policy limits. The policy limits are listed in your policy contract and essentially set the maximum amount of money that your insurance provider will pay out. Policy limits are generally separated into three categories also known as “split limits”: maximum bodily injury liability, aggregate or total bodily injury liability, and maximum property damage liability. North Carolina sets a liability minimum that all drivers must carry, known as $30,000/$60,000/$25,000. These are coded in order to represent the listed categories above. The diagram below provides a better illustration.
The maximum bodily injury insurance is the maximum amount that your policy will pay to any one individual injured in an accident. In North Carolina, drivers are required to have a minimum of $30,000 as their maximum bodily injury liability. In other words, the most one individual could recover from an at-fault driver with the minimum policy amount is $30,000.
For example, let’s assume that someone driving your vehicle that is covered under your liability insurance policy causes an accident. The other driver is injured and suffers $45,000 in medical bills. Here, the most the injured driver will be able to receive from your liability insurance will be the $30,000, leaving a $15,000 balance that either you or the injured will likely be responsible for.
The aggregate or total bodily injury liability is the amount of coverage available for all injured parties combined that were injured in the accident. In other words, payments for all bodily injuries cannot exceed the policy limit amount. In North Carolina, drivers are required to have a minimum of $60,000 as their total bodily injury liability. For further understanding, let’s look at the following hypothetical situation.
Let’s assume that you are driving your vehicle and cause an accident. The other driver and their passenger are both injured. The driver and passenger end up with $45,000 in medical treatment each ($90,000 total). Due to the policy limit being $60,000 total for bodily injury per accident, the insurance company will be responsible for up to $60,000. Therefore, there will be a $30,000 remaining balance that either you or the injured party will be liable for.
Lastly, the maximum property damage liability is the maximum amount an insurance provider will pay toward property damage. In other words, property damage liability insurance covers payment for damages to a third party’s property that is a result of an accident caused by you or another covered driver. In North Carolina, drivers are required to have a minimum of $25,000 in property damage liability insurance. With this being said, if you are in an accident with an at-fault driver who only carries the minimum limits required by law, you will only be able to recover up to $25,000 for damages to your vehicle or for any personal belongings damaged inside your vehicle. As you can imagine, this can be a real problem when your vehicle is worth much more than the minimum policy requirements. We will go into further detail on what to do in these types of circumstances.
Although you may only be required to have a certain amount of liability insurance, we recommend carrying more. Liability insurance can help protect you from becoming personally liable for medical expenses and damages of another driver. For instance, if you rear-end someone and they are severely injured as a result, it would not be uncommon for their medical expenses to easily exceed the $30,000 limit. Therefore, having higher limits can help shield you from lawsuits for unpaid damages.
Furthermore, when you are purchasing car insurance, remember to consider how far your property damage liability may go, as you may also be liable for any remaining amount not covered by your insurance. For instance, if you cause a multiple car pile-up or hit a very expensive vehicle, if you only have the $25,000 minimum liability requirement, you may not have enough coverage to pay for all of the property damage. Once your insurance company has paid out the maximum ($25,000), you will likely be responsible for the rest.
In general, policy limits range from the required minimum on up into the millions of dollars. There are three main policy ranges from most insurance companies: 30/60/25, 50/100/50, or 100/300/50 (in thousands).
The first set is the minimum amount required by the State of North Carolina and has been discussed in detail. The second insurance policy includes $50,000 available to any one individual, with $100,000 being the total amount available for bodily injury per accident. There would also be $50,000 available for property damage. The last of the three includes $100,000 for any one individual for bodily injury, with $300,000 being the total amount available for bodily injury per accident. While these are the three most popular, they are by no means the only liability limits available.
It is important to understand how the bodily injury liability limits interact (i.e., maximum bodily injury and total bodily injury) with one another, as they both play an integral part in determining whether there will be damages not covered by the policy. Again, this is important because you may become personally liable for any damages not covered by your insurance. In order to better understand how the two personal injury limits interact, let’s look at several hypothetical situations.
Hypothetical $30,000/$60,000 plan (minimum required limits in N.C.):
Let’s assume that you are liable for an accident and that the driver and passenger of the other vehicle are injured. The driver’s injuries amount to a $35,000 bodily injury claim, and the passenger suffers $25,000 worth of bodily injury ($60,000 total). In this hypothetical situation, your insurance will pay up to $30,000 on the driver’s claim and all of the $25,000 of the passenger’s claim. Therefore, you may be personally liable for the remaining $5,000 balance on the injured driver’s bodily injury claim. This is due to the $30,000 maximum bodily injury limit on the liability policy. While this may seem unfair, being that you have a $60,000 total bodily injury limit and the total treatment for injuries of the two injured parties are $60,000, the maximum bodily injury limits the insurance company’s liability. Furthermore, this would be the case no matter how small the passenger’s bodily injury claim may be.
Let’s now assume that you are liable for an accident, except now both the driver and passenger of the other vehicle have $50,000 each in bodily injury treatment ($100,000 total). Under these set of facts, both injured parties will receive $30,000 from your liability insurance (the amount allowed under your maximum bodily injury limit). Furthermore, you may be personally responsible for paying the remaining $40,000 balance ($20,000 each).
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