Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the bodily injury and property damage expenses caused to others in the accident, including your legal bills. Bodily-injury coverage pays for medical bills and lost wages. Property-damage coverage pays for the repair or replacement of things you wrecked other than your own car. The other party may also decide to sue you to collect "pain and suffering" damages.

The foundation of your auto insurance puzzle is liability insurance. Forty-five states require the purchase auto liability insurance (South Carolina and Virginia require that you register as an uninsured motorist if you do not have liability insurance, Tennessee requires proof of financial responsibility, and New Hampshire and Wisconsin don't mandate liability coverage except in certain cases). Your insurance minimum will depend on where you live. For example, in Texas, drivers have to purchase at least $20,000 worth of bodily injury coverage per person, $40,000 worth of bodily injury coverage per accident, and $15,000 worth of property damage coverage (also known as 20/40/15).

See the Minimum levels of required auto liability insurance to find out what's required where you live. Remember, if you cause a serious accident, minimum insurance may not cover you adequately. That's why it's a good idea to buy more than what your state requires. If you own a home and have nest egg and a savings account, you should consider more liability insurance because, in most states, drivers are allowed to sue other drivers who injure them in car accidents. If you're sued and your liability insurance doesn't pay for all of the damages, your personal finances are on the hook, and it's likely you'll become a target.
http://info.insure.com/auto/basics.html