Understanding Property Damage Liability Coverage on Your Auto Insurance Policy

When you are at fault in an accident, property damage liability coverage pays for damages incurred by the other party to their car, possessions, or property such as their fence or mailbox. Bodily injury liability coverage covers medical expenses incurred by your passengers or the other party in an accident and your legal counsel if you need to settle the matter in a court. Both these insurances constitute what is called "liability insurance."

Generally, it is mandated by law that every driver must have liability insurance. Every state sets specific minimums for property damage liability.

The actual premium depends on the limit you choose for your coverage and your driving history. When purchasing property damage liability coverage, it is a good idea to have a large limit to cover unfortunate circumstances such as colliding with an expensive car like a BMW or Mercedes. Insufficient limits can result in your having to pay out of your pocket to cover damages caused by you. For example, if you have a limit of $10,000 in your property damage liability coverage but happen to rear-end a BMW causing $15,000 of repair for the other party, your insurance company will pay only $10,000. You have to pay the remaining $5,000.

Keep in mind that property damage liability does not cover damages to your own car even if you are not at fault. You must buy "uninsured/underinsured motorist" coverage to pay for damages when the other party is at fault, but does not have sufficient insurance coverage to pay for your losses. When at fault, "collision / comprehensive coverage" will pay for your car in your auto policy.