Liability car insurance can help protect your finances if you’re found at fault in an accident by paying for damages to other people and property, as well as legal fees for yourself.

Most states legally require you to carry some sort of liability coverage, and almost all car insurance companies offer liability insurance since it’s the foundational coverage of car insurance. If you’re shopping for car insurance coverage, CNBC Select has chosen the best car insurance companies for 2023. Our top picks include Geico for the best overall coverage and State Farm as the best for customer satisfaction.

Here’s what you need to know about liability car insurance.

Insurance companies typically break down liability coverage into two components: Bodily injury liability and property damage liability. Here’s what each term means:

• Bodily injury liability: This coverage can help cover medical expenses for another person, including doctor’s visits and emergency services. It can also compensate them for lost wages and income as a result of their injuries. Liability insurance coverage can also help you pay for any legal fees you could face as a result of the accident you caused. There’s generally a limit of coverage per person injured and a total maximum per accident on a car insurance policy.
• Property damage liability: Covers damage done to other people’s property, like a mailbox or a porch. It can also pay for damage done to another person’s car.

It’s worth noting that liability coverage doesn’t cover damage to your own car or your personal injuries. To cover damage to your own property, you’ll need to have comprehensive coverage and/or collision coverage. 

When you’re shopping for car insurance, you’ll see that the amount of coverage for each of these is generally written with slashes in between each type. For example, a “50/100/25” policy would carry $50,000 worth of bodily injury liability coverage per person, $100,000 worth of bodily injury liability coverage for each accident you’re involved in, and $25,000 worth of property damage coverage per accident.

Most states legally require you to have liability car insurance. However, the amount of liability coverage mandated by your state can vary. Check your state’s laws for car insurance coverage to make sure you have enough.

It’s also worth noting that you may be held responsible for costs beyond your policy’s limits if you’re at fault in an accident. You might want to consider having liability coverage that’s greater than or equal to your net worth to make sure you don’t lose assets if you’re sued.

In many cases, having more coverage than just liability coverage might be important. While other coverages might not be required to be insured in your state, they could help you if you don’t have the funds on hand to purchase another car.

Liability insurance only covers damage to other people and property. Here are four other types of coverage you might want to consider:

• Collision coverage: If you find yourself in a collision with an object or another vehicle when you’re at fault, collision coverage could help you repair your car.
• Comprehensive coverage: If your car is damaged by a natural disaster, vandalism, or even a falling tree, comprehensive coverage can help you repair or replace your car. Without this coverage, you could be paying for the damages yourself.
• Gap coverage: If you have a car loan or a lease and your car is stolen or totaled, gap coverage can help cover the difference between what you still owe on your loan or lease and the depreciated value of the car.
• Personal injury protection (PIP): This helps pay for your medical expenses and lost wages caused by an accident no matter who is at fault.

Minimum amounts vary based on what state you live in. But, the actual amount you might need will likely be higher, since experts recommend you have liability coverage equal to your net worth.

Your net worth is calculated by adding up all your investments, cash, assets and real estate, minus liabilities such as loans, debt, and mortgages.

Liability insurance is a critical part of your overall car insurance coverage that helps financially protect you when you’re at fault in an accident. But it won’t cover many common scenarios, such as hitting an animal or damage from a fallen tree branch. Do your research and talk to a trusted insurance expert to make sure you’re getting the coverage you need.