Last Updated: December 8th, 2023

Auto Insurance 101: Property Damage Liability

Auto Insurance 101: Property Damage Liability

A car insurance policy is more complicated than many people realize. A policy includes several types of coverage with varying limits, and states have their minimum requirements for some coverage forms. One vital type of coverage required in most U.S. states is property damage liability, which covers you financially if you cause an accident that damages someone else’s property.

Intro to Auto Insurance

Auto insurance is essential coverage for anyone who owns and operates a vehicle. You pay a monthly premium, and the insurance company covers losses after an accident. How much you pay and what the insurance company pays out depends on the details of your particular policy terms.

So, what does auto insurance cover? Your car insurance policy is a package deal. It’s a policy that includes several different types of coverage, such as:

  • Bodily Injury Liability: This covers injuries to other people when you or anyone listed on the policy is driving.
  • Property Damage Liability: This coverage provides payment if you cause damage to someone else’s property (such as a vehicle, fence, or mailbox).
  • Personal Injury Protection: PIP covers your injuries and losses after an accident. It also covers your passengers.
  • Collision: Collision coverage pays for damage to your car, both caused by accidents and potholes. The coverage applies even when you are at fault.
  • Comprehensive: This covers car damage from incidents other than collisions or potholes, for example, damages caused by falling objects, thefts, fires, and animal strikes.
  • Uninsured and Underinsured Motorist: If you are in an accident caused by a hit-and-run driver or someone with little or no insurance, this coverage provides reimbursement.

A Closer Look at Property Damage Liability Coverage

When considering the consequences of an accident, most people think about covering damage to their car or medical expenses first. However, the price of paying for damage you cause to someone else’s property can be just as costly. That’s why property damage liability coverage is an essential component of an auto insurance policy. Plus, many states require you to have it.

Property damage liability covers more than just another driver’s vehicle. If you strike and damage a house, a commercial building, trees, lamp posts, or other objects, this coverage provides reimbursement to the owner.

For example, if you use someone’s driveway to turn around and accidentally hit their mailbox, this part of your policy helps you reimburse the homeowner. If you rear-end someone at a red light, damaging the bumper, your policy will cover the repair cost.

The coverage only goes up to your limit on the policy, so you may end up owing more depending on how much damage you cause. Imagine, for instance, you rear-end a car. The bumper damage is minimal, but they had expensive antiques in the trunk that are now ruined. You could owe them thousands of dollars without adequate coverage.

Coverage Requirements

Most states require drivers to have at least a minimum property damage liability coverage. The state minimum amounts range from $5,000 in California, New Jersey, and Pennsylvania to $25,000 in several states, including North Carolina, Ohio, and Texas.

You have the option to stick with the minimum required amount or to buy more. If you live in California and buy only the $5,000 coverage and cause an accident with $10,000 worth of damage to the other car, you’ll be $5,000 out of pocket.

The Option of Umbrella Coverage

An alternative to extending your property damage liability coverage under your auto insurance policy is umbrella coverage, a type of personal liability insurance. It provides coverage when you reach the limits on other types of insurance.

For example, if you have the minimum property damage insurance coverage for California and cause $10,000 worth of damage to another vehicle, umbrella insurance covers the difference. It also provides additional coverage that your auto policy doesn’t, for things like legal fees if someone sues you.

Know Your Requirements, Know Your Limits

Understanding all aspects of auto insurance coverage is essential for protecting your finances, like cargo insurance. With the right insurance that meets or exceeds state law requirements, you can ensure that one accident doesn’t upend your finances. Don’t get caught without coverage after an expensive accident, which can cost hundreds of thousands of dollars in damages.