Liability coverage is the basis of any auto insurance policy. Forty-five states require you to carry liability. It is reflected in three numbers on your policy, for example 20/40/20. The numbers stand for bodily injury coverage per person, bodily injury coverage per accident and property-damage coverage per accident. In the above case, you would have $20,000 for bodily injury per person, $40,000 in bodily injury coverage per accident and $20,000 in property-damage coverage per accident.

Liability insurance pays for bodily injuries and property damages caused to others in an accident. Your legal bills are included. Bodily injury coverage pays for medical bills and lost wages, while property-damage coverage pays for the repair or replacement of property other than your own.

The minimum amount of coverage allowed by state law varies from state to state. For example, drivers must have at least 20/40/15 coverage in Texas. But you should keep in mind, if you cause a serious accident, minimum coverage may not be enough.

You should buy enough liability insurance to protect your assets. If you own a home and have savings, you could be sued by an injured party. If you are sued without adequate liability insurance, you could lose your home.

Liability limits
Liability insurance is usually listed as three numbers. The first number is the bodily injury liability per person. The second number is the bodily injury liability maximum per accident. The third is the property damage liability per accident.

If you have 20/40/20 coverage, you carry $20,000 of coverage for injuries per person, $40,000 for all injuries in an accident and $20,000 for property damage per accident. These amounts are paid to those that you have injured or caused property damage to.