Auto insurance covers not just damage done to your vehicle, but also damage you subject others to when you cause an accident. The insurance company covers the cost of the damage and pays for the hospital bill of the other driver, often without the necessity of going to court. If you injured someone badly or killed someone with your car, either the victim or their family will file suit. This can happen with or without auto insurance.
The function of auto insurance is to pay the bills of another person you're responsible for paying if you're in an accident, provide representation for you in court if that's necessary and cover your costs if you have full coverage.
Collision coverage pays for your car or damage, less any deductible if you hit something. Comprehensive coverage pays for all other forms of damage, such as hail or theft. Liability insurance pays for the damage to others. If you damage their car or even their living room because you ran into it with your car, the property damage section covers that expense. If anyone needs minor care, the medical expense section covers that regardless of fault. It also covers you or family members if you're hit by a car while walking. The bodily injury liability covers major injury you caused to another party.
When you've caused damage to another and they don't receive the payment they want, they can sue you. The insurance company provides your representation, but your name is still on the suit. If the other party wins and the claim falls within the limits of your policy, the insurance company pays.
Liability insurance coverage on many people's insurance policies is inadequate if there's a major injury. Most people carry 100/300 limits, which means $100,000 per person and $300,000 per accident. If a driver has this coverage and causes injury to another that has medical costs more than $100,000, everything beyond that amount comes out of the pocket of the driver who caused the accident.
Lower limits of liability cost less than higher limits, but it's only pennies a day less. If your company offers higher limits, it's best to increase them. Most of the time, you won't notice a significant difference in your premium.
Another potential solution to avoid paying a huge sum out of pocket is an umbrella liability insurance policy. These policies are also relatively inexpensive for the coverage, and they cover you for other things besides an automobile accident. They cover almost every aspect where there's a potential suit on a personal level, including slander and libel.