Auto liability insurance pays for the bodily injury and property damage to the other drivers in an auto accident if the accident is your fault. The amount of your auto liability insurance should equal or be near the value of your assets. If the injured party seeks legal action against you to receive the money you owe them in damages, then you may be forced to liquidate your assets in order to pay them if your insurance does not provide adequate coverage.

Protect Your Assets and Net Worth

Purchase enough auto liability insurance to protect your assets and net worth if the injured party files a lawsuit against you, forcing you to pay out of pocket to cover the damages you caused in the accident. Consider your yearly income, housing expenses and savings when deciding on an auto liability insurance policy. For example, if you make $30,000 a year, rent an apartment, and have minimal savings, then an auto liability insurance policy of 30/60/10 should be enough to protect your assets. This means that $30,000 is available to compensate the injured person, $60,000 is available to compensate all the injured persons combined and $10,000 is available to compensate for property damage. If you make more than $75,000 a year, own a house priced more than $150,000 and have at least $40,000 in savings and investments, then you need an auto liability insurance policy of at least 100/300/25 to cover your assets when paying damages.

Minimum Amounts

The required minimum amount of auto liability insurance varies from state to state, but is often not enough to cover the payment of damages and medical expenses caused by an accident. After your insurance pays the injured party what you owe in damages, you may owe more than your auto liability insurance covers, depending on the severity of the accident. You must continue paying the difference out of pocket until your debt is complete or face legal action from the injured party.

Insurance

Auto liability insurance includes liability insurance for bodily injury and property damage. The property damage portion of your auto liability insurance covers damage to other property besides the person's vehicle, like a light pole or traffic sign that may have been damaged or destroyed in the accident. Auto liability insurance also pays for a lawyer to defend you in court if the injured party sues you as the result of an auto accident.

Source:

Auto Insurance Tips: Liability Coverage: How Much Should You Have?

Smart Money: How Much Auto Insurance Do You Need?

Net Quote: Understanding Auto Liability Insurance