Difference Between Liability & Collision Insurance

Prudent motorists evaluate insurance policies based on individual circumstances when choosing the types and amounts of automobile insurance needed. Understanding the terms associated with auto insurance, as well as the types of coverage offered, can facilitate proper assessment. Knowing the difference between liability and collision insurance is one aspect of determining how much and what types of coverage is needed.

Bodily injury liability auto insurance covers the costs of injuries to others deemed the fault of the policyholder. Property damage liability covers the costs of damage the policyholder causes to the vehicle or additional property of another. For example, if a driver with property liability insurance inadvertently causes an accident that results in damage not only to the vehicle of another driver but personal belongings inside the vehicle as well, the at-fault driver's property liability coverage should reimburse the victim for their property.

Because basic property liability insurance does not cover the vehicle of the policyholder, motorists may choose to add collision insurance to an automobile policy to protect the monetary investment in a vehicle. Collision insurance specifically covers the vehicle of the policyholder. For example, in a one-car accident in which the driver hits a utility pole, the collision portion of the automobile policy would pay for the resulting damage to the policyholder's vehicle. Policy provisions under the collision portion of an insurance contract may specifically list the maximum amount of coverage per accident.

Drivers who have an automobile loan with a creditor's lien on the vehicle may be required by the lender to carry collision insurance on the vehicle until the lien is cleared, i.e., the loan is repaid. The cost of collision insurance varies accordingly with the type and value of the insured vehicle. In instances where the driver has no lien on an expensive vehicle, the driver may choose to carry collision insurance as optional coverage. Conversely, when a vehicle has little monetary value, the driver may choose to forgo collision coverage because the premium costs for this type of insurance may exceed the total value of a cheap vehicle in a short time.

State regulations require motorists to exhibit some type of financial responsibility to others on the road. Some states specifically mandate liability insurance. In other states that do not specify insurance coverage as the sole means of showing financial responsibility, many drivers choose to purchase liability insurance as an accessible means of meeting state driving laws. State regulations also require particular minimum amounts of coverage to be maintained. A local insurance agent or the state office of insurance relevant to the driver's residence can provide details as to the amounts of liability coverage required.