Liability coverage is one of the essential parts of any car coverage policy, but many people misunderstand this critical coverage. Most states require drivers to maintain a minimum level of liability coverage, with potentially severe penalties for uninsured drivers. Still, many drivers may be surprised at what this part of their policy does and does not cover.

This guide will help you understand why states require this coverage, why you won't want to skimp on the amounts you purchase, and how you can decide how much you need.

What Does Liability Insurance Cover?

You'll commonly hear insurance companies tell you that liability coverage protects other drivers in accidents. This description is technically true; when you cause an accident, liability coverage will cover property losses incurred by the other party or parties. However, liability coverage is ultimately about protecting you and your assets.

When you are responsible for an accident, the other parties can typically attempt to recover damages from you. Without liability coverage, they must recover these damages by suing you. A lawsuit can expose your assets — your car, home, savings, and more — to risk. Liability coverage steps in and protects you against these risks.

State governments require liability coverage because many individual drivers do not have enough assets to cover the damage from an accident. Minimum liability coverage amounts guarantee that if you cause an accident, the money will be available to make the other party whole. Minimum liability amounts vary by state, so you'll need to check with your local laws to determine how much you need.

How Much Liability Insurance Should You Get?

You will always need to get at least as much liability coverage as your state requires. Beyond this amount, should you spring for higher coverages? The answer can be more complicated than you might expect. The general rule is to carry enough liability coverage to protect your major assets from potential lawsuits.

For example, if you own a home worth $300,000, you should consider carrying at least $300,000 worth of liability coverage. You should also look at other major assets, including investments, savings, and so on. These higher coverage limits will protect you if you cause an accident that results in serious property damage or bodily harm.

The good news is that increasing liability coverage is generally a fairly cheap option. If you're currently using your state minimum, you should consider contacting your insurance company to check how much increased coverage will cost. Adding extra liability coverage may be a cheap way to minimize your risk of a serious lawsuit following an accident. 

For more information about auto insurance, contact a local company.