How Auto Insurance companies Define Liability

The auto insurance industry works like this: Auto insurance companies make money when you have no claims and are a great driver with no accidents, or at least no accidents that are your fault, and you faithfully pay your insurance premiums on time. When you have an accident that is your fault, your own insurance company has to pay for the other driver's repairs, and expenses, including medical bills. Then they lose money and your auto insurance policy premiums or payments will go up, to help the insurance company make up the money they lost.

The word liable means legally responsible, according to www.dictionary.com. If an accident is found to be your fault, then you are legally responsible or liable. Liability comes from the word liable. Liability is what insurance companies build into your auto insurance policy, in the event that you have an accident where you are at fault. Then they have to pay out. Liability is actually one of the categories listed on your auto insurance policy. Liability is also listed often when you get an auto insurance quote from another insurance company.

Auto insurance companies comprise a huge industry. There are so many accidents in the United States every year, over six million in 2005 alone (http://www.car-accidents.com/pages/stats.html). As a result, the auto industry has come up with ways to estimate your potential liability by looking at many different factors. They will look at your geographical area of the country and even of your state, your sex, your age, the number of vehicles in your household, the number of drivers in your household, and the number of accidents all members of your household have ever been in. They probably look at your credit score to see if you pay your bills on time, and are financially responsible. It feels unfair to be pre-judged by these factors, but it is the only way for the insurance company to determine what you may cost them and so they set the insurance policy and its premiums accordingly.

The liability portion of your auto insurance policy “provides that the insurer will pay for damages for bodily injury or property damage for which any insured becomes responsible because of an auto accident” (Zevnik, Richard The Complete Book of Insurance). Each insurance company writes auto insurance policies in accordance with each state's requirements, in some cases adding figures that seem necessary to truly cover all expenses in case of accidents. Here is where you get into differences between auto insurance companies and why you will get some higher and lower auto insurance quotes from different companies. Some auto insurance companies will write a policy for as close to the state minimum as possible. You will save money going with an auto insurance policy like that. However, in the event you are in an accident, it is likely there isn't enough liability built into the policy to cover all expenses and you may find yourself with bills you didn't expect.

Make sure you are paying your insurance premiums on time and in full. Carefully look over your auto insurance policy to see that you have enough liability coverage built in, to cover you in case of an accident. Also see that there is coverage built in for the other driver, if you are found to be liable. Check around with several different auto insurance companies as even with these precautions, there can still be a significant difference in premiums.