The quest for the perfect car insurance policy is one of the most severe difficulties of everyday drivers. Most states make it a requirement to have some sort of insurance on your car. Consequently, most drivers opt to go for the bare minimum (the cheapest type of liability insurance) over the full coverage car insurance policies.
Sincerely, liability insurance is the cheaper option. You have to pay less than full coverage, and it helps you meet state requirements. But full coverage policies cover way more and enable you to lower the risks attached to owning a car.
So which should you get? What insurance policy is the right one for you?
The answer is simple: it depends on your circumstances. $1502 is the annual average on national insurance costs. Owning just liability insurance will put your spending on insurance lower than this, and add-ons on full coverage can raise it beyond this annual average.
This post will attempt to help you answer the question to the age-old question; “Liability vs full coverage car insurance: which car insurance do I need?”
Let’s get to it.
Should I Get Liability or Full Coverage?
Liability insurance vs full coverage is not a question quickly answered. If it were, you wouldn’t be here reading this article now, would you? To truly understand the difference between the two insurance types, we must first understand the kind of coverage you get with each.
Liability insurance covers you for any damage you may cause to people or property with your vehicle while driving. So if you end up in an accident with another car liability insurance has you covered.
It will cover the other driver’s medical bills if you are the driver who is at fault. Sometimes Liability insurance extends to cover for any additional expenses resulting from the accident.
You are also covered for any property damage resulting from the accident. Suppose you are found to be at fault for the accident, liability insurance will cover you for repairs or even replace the other driver’s vehicle. It also covers property other cars, including but not limited to fences, telephone poles, and buildings.
Full coverage insurance, on the other hand, offers you coverage in multiple folds. The most popular insurance coverage options under full coverage insurance are Collision coverage and comprehensive coverage.
It is easy to deduce what collision coverage does. You are insured against any damage to your car resulting from a collision. So if you end up hitting another vehicle, an object, or going off the road, collision coverage protects you in such situations.
Comprehensive coverage offers you coverage for any damage to your vehicle resulting from non-collision causes. So in the case of theft, a fire outbreak, and an earthquake or any other sort of natural disaster, comprehensive coverage is there to protect you against loss.
As you can see, while the difference between the two is straightforward, it is not easy to pick between them.
Let’s talk more about these coverage options.
What is Liability Insurance?
If you are looking for protection for any damage, you may cause to other drivers while out on the road, liability insurance is what you are looking for. It will help you cover any cost concerned with other drivers or their cars or property if an accident occurs due to your actions.
Almost every state requires that you get auto liability insurance vs full coverage car insurance, which is not required.
While this definition sounds easy to grasp, we find that real-life examples are best for explaining how insurance coverage works. So here’s one.
You are on your way home, about a few blocks away from home, you arrive at the four-way stop near your home. This isn’t new to you; you have been here a hundred times. The only difference is, this time, you are distracted.
You don’t realize it’s the other vehicle’s turn to move, and before you know it, you have smashed into the other car.
Here’s where your liability insurance kicks in. Your insurance provider or company swings into actions and joins hands with the other driver’s insurance company to ascertain who exactly is at fault for the accident.
No-fault states require that both drivers file a claim regardless of which driver caused the accident. Such states also require drivers to get PIP (personal injury protection) coverage. This covers them for theirs and their passengers’ medical expenses as a result of an auto accident.
Suppose you are determined to be at fault. In that case, your insurance company will pay out the funds to the other driver (minus your deductible.) You will be insured for the costs of repairs done to the other driver’s car or the costs of replacing the vehicle. This payout will only be up to your coverage limits.
Liability Coverage limits
The kinds of coverage limits for liability car insurance include
- Liability limit for property damage: this is the max coverage for any damage you may cause to another’s property. Beyond this limit, you are fully responsible for the costs.
- Liability limit for bodily injury per person: this limit is the limit your insurance provider sets on the amount paid out to each individual involved in the accident.
- Liability is limited for Bodily Injury per accident. This is the cap on the sum total of funds paid out to individuals involved in an accident at which you are at fault. You will bear any additional costs that exceed this limit.
Keep an eye out for these limits when signing your insurance deal.
Bodily Injury Liability Protection.
Liability coverage goes beyond just cars and other property. If the other driver is injured, this will be covered by Bodily injury liability protection. You won’t have to bear the costs of their medical bills alone.
In some cases, this can extend to cover wages lost due to the accident or legal fees of a resulting lawsuit. It can even cover funeral bills in case of death.
What is Full Coverage Insurance?
Right out of the gate, let’s clarify, there is no “full coverage” car insurance policy that covers you for all situations surrounding your car. Be careful with agencies or agents that will tell you otherwise.
Full coverage combines many auto insurance options to earn its name. These options may or may not be required by your state. The more popular combinations under full coverage are collision coverage and comprehensive coverage. You can also have underinsured or uninsured motorist coverage, OEM endorsement, full glass coverage, gap insurance, roadside or towing assistance, car rental coverage, and vanishing deductible under full coverage.
States are free to set their requirements for auto insurance. Most states only require that you get liability coverage. Others may require that you get additional insurance, depending on your situation.
We have already talked about comprehensive coverage and collision coverage. Let’s talk a bit more about the other insurance options you can choose to add to your policy.
1. Underinsured or uninsured motorist coverage
This coverage option protects you in situations where the accident involves an underinsured or an uninsured driver. It also offers protection in cases where the driver flees the scene. In these situations, the driver’s insurance may not cover medical expenses, and that’s where this option comes in.
The requirements regarding this option differ from state to state. Check with the government to know if it is required.
2. OEM Endorsement
OEM stands for Original Equipment Manufacturer. Most insurance providers do not use parts that come from your car’s manufacturer. They choose to go for the more affordable option when there is a need for repair work on your vehicle. If offered this option by your provider, you can choose to get parts from the manufacturer for your repair works.
3. Full Glass Coverage
Full glass coverage automatically protects you from any glass damage is your add it to your policy. With this option, you can pay higher premium rates to get no deductible or, at the very least, a lower deductible for glass claims alone.
If you choose to go with a higher deductible option on your comprehensive coverage, this might wipe out your full glass coverage.
4. Gap Insurance
This is also called the loan or lease payoff insurance. If you are getting a loan to cover a large part of your car payment, you should request this insurance coverage.
In situations where you owe more than the value of your car in loans and are in an accident, then you will be responsible for all that. Gap insurance will cover you for this. Seeing as cars depreciate quickly, this option might be worth it.
5. Roadside or Towing Assistance
When you have cases where you have to tow your vehicle, change a tire, or jump a flat battery, this insurance option comes in to save the day. Your insurance provider will send you assistance in these situations.
Most auto insurance packages usually feature this option.
6. Car rental coverage
Your insurance provider may also cover you for car rentals for a set amount. This coverage reimburses you when you buy full coverage car insurance from them. If the car rental coverage isn’t listed in your policy, please ask.
Usually, you can pick a definite amount of rental coverage for each day. So make sure that you choose enough to cover the costs of a car that will match your needs.
7. Vanishing Deductible
A vanishing deductible offers you a discount from your annual deductible. This is usually a reward for safe-driving practices that you maintain throughout the year. This option doesn’t automatically come with your full coverage insurance, so make sure to ask for it if you are interested in it.
It also adds an extra amount to your premium rates and must be added to the policy before a loss.
With all these extra options, it is easy to see that full coverage insurance offers you a lot more than just comprehensive coverage and collision coverage.
Does Full Coverage Insurance Include Liability?
To put it simply, yes. Full coverage insurance includes liability insurance. Purchasing a full coverage insurance policy means you have purchased liability insurance alongside at least comprehensive and collision coverage insurance.
Virtually all states require that you have liability insurance on your car. To match this, insurance companies provide you with either purchasing liability insurance as a standalone option or going for the full coverage insurance option.
This is what resulted in the auto insurance full coverage vs liability insurance discourse. Car owners would love to know whether it is much better to go for the standalone liability insurance package or go for its full-coverage counterpart. In truth, there is no one answer for everyone, since we all have different surrounding circumstances.
Liability Vs Full Coverage: Is Liability Insurance Cheaper Than Full Coverage Insurance?
Without all the extra add-ons, liability insurance is generally much cheaper than full coverage insurance. This should be expected. After all, the full coverage insurance offers liability insurance along with many other insurance options.
You can expect the price rate on your insurance policy to be affected by many things, such as
- The mileage on the car,
- Whether you have or do not have a safe driving history
- The age of your car
- The state or area you live in
- Whether you are bundling your car insurance with a homeowner or renter’s insurance policy or not.
- The parking conditions in your home (in a garage or outdoors on the street)
- The make of your vehicle
- Whether you are getting a multi-car insurance policy or not.
- Your credit score.
Insurance companies take all these factors and possibly many others into consideration before deciding on your full coverage insurance rates.
So how much does auto insurance full coverage vs liability coverage cost you per month once this is done?
Suppose you are an experienced driver with a history of excellent and safe driving in a not too old car. In that case, you can expect to get your monthly payments at a price below $100. The liability coverage option will still cost less, though it does not come with as many add-ons.
Keep in mind, though, cheaper isn’t always better, as we will be talking about in the next section.
Liability Vs Full Coverage: What Happens If I Only Have Liability Insurance?
Suppose you only have liability insurance coverage on your car and you have an accident where you are at fault. In that case, liability insurance covers you for damage to the other driver’s car as well as their person.
For any damage done to your car in the accident, you will end up having to pay out of your own pocket.
To meet state requirements, most drivers opt for the minimum limits of liability insurance. You would not be able to register your car otherwise. While opting for the minimum limit is not necessarily wrong, it is also quite risky.
Why is this so?
Well, in situations where the costs of repair or medical expenses exceed the limits of your coverage, you will end up having to shell out more money from your own pocket. To make matters worse, the other driver involved may end up suing for one reason or the other, and your coverage might not be enough to pay off the legal fees.
Also, note that liability insurance does not cover any damage to your car. This means you will be paying off the costs of vehicle repair and the other driver’s medical expenses. You would also have to pay for the costs of your own repairs or even replacement. You would agree that this could be quite expensive.
If the accident wasn’t your fault and you only have liability insurance, then the other driver would have to pay to fix up your cars. In cases where the driver defaults, you may sue him for the costs of fixing up your vehicle. But while the case might be ongoing, you would have had to pay for the repairs from your own money.
You should raise your liability insurance limits well above the state’s required limits. This will help you cover the increase in medical care as well as repair costs.
Liability Vs Full Coverage: What Coverage Do You Really Need For Car Insurance?
As a rule of thumb, you should make sure that at the very least, your liability coverage is high enough to protect your interests and assets in case of an accident. A limit of between $100000 and $300000 is the recommended limit by many experts in the field. Take note that this amount might still not be enough.
So if you can afford it, draw up a higher amount on your policy. This is not the time for cheap car insurance.
If you are going for a full coverage insurance policy, you should take a careful look at all the available options. It is good practice to only include the most necessary or likely covered risks. Collision coverage and comprehensive coverage often cover most of the possible dangers.
Additional options can be added to your policy if you want the convenience and can afford it. Roadside assistance is an example of such an affordable and convenient option.
To get a cheaper rate on your insurance policy while still getting your excellent coverage option, look towards your deductible.
The deductible is the amount you will shell out before your insurance coverage kicks in to cover the costs.
For instance, you are involved in an accident, and your fender ends up bent. The repair costs sum up to about $1500, and your deductible is $500. You would pay $500, and your insurance coverage will pay off the rest of your sum.
Take note that if the repair costs are lower than your deductible, then you will be paying for it all right out of your pocket. You must find the right balance that will match your financial situation and not end up causing you significant discomfort or other inconveniences.
Do I Need Full Coverage?
Deciding on the better option in the liability vs full coverage car insurance argument can be quite hard. After all, the state only requires that you get liability car insurance and nothing else. So the question arises, do you need full coverage car insurance.
Well, your choice of whether to get full coverage on not should be guided by the consideration of several factors. These factors will most likely guide insurance companies when they are to give you a quote.
So it only makes sense that you also have them in mind. What are these factors?
a) You’re purchasing power for a new car.
This is perhaps the most important thing to consider when deciding on the level of insurance cover to get. As you probably know, getting liability insurance alone puts all the responsibility of repairing and replacing your own car on you alone. The costs of getting a rental vehicle, repairs, or replacing your current vehicle can be quite expensive.
There’s no coverage for that with just a liability insurance cover, and your insurance company will not even blink towards that direction.
On the other hand, with the bare minimum of full coverage, you get a certain degree of support based on your policy terms. Depending on the terms of your insurance deal or policy, you might get enough help from the company to pay for a rental car and repairing or replacing your vehicle.
This shows that full coverage insurance does have its uses.
Also, while you might currently have enough funds to replace your car easily, this is no guarantee of the future of your financial situation. A full coverage insurance policy will be the guarantee you need. Think of it as a just-in-case endeavor.
It’s better to play it safe than to risk it all.
That said, you should determine the amount of coverage you get in your car by your current financial situation. Don’t just go all in and let the insurance coverage become a hindrance or inconvenience rather than the help it is designed to be.
b) The Resale value of your car
This is another essential factor that will let you know how much coverage to get. Insurance companies will consider the current market value of your car when paying out claims. This consideration will factor in depreciation and other market situations when your claim’s payout is being calculated.
This is why junk cars are not worth getting a full coverage car insurance policy. Put simply; its value will end up on the lower side than on the high side.
There are instances where the accident results in a repair cost, not even up to the amount you pay as deductible. So you might end up having to cover repair costs on your own. The entire point of getting full coverage car insurance is to get support for situations like this.
Expensive cars exist on the other side of the spectrum, though. Getting full coverage insurance on such a vehicle is very rarely a bad idea. In situations where your car is completely wrecked, you will not have to pay for a replacement car alone.
Your insurance company will step in and help you cover costs once you have exceeded your deductible.
Suppose the car can still be repaired and returned to optimal conditions. In that case, your insurance company will also partner with you for this. Some companies even go as far as recommending repair companies that they are partnered with to get you even lower costs on your repairs.
Having a valuation done on your car before getting car insurance definitely makes sense. It will give you an idea of whether to go all out or keep the funds to yourself.
c) The cost attached to your insurance policy
The cost attached to your full coverage car insurance policy is affected by several factors. Your driving history plays a vital role in determining the value of your policy. The make and model of your vehicle, the state and zip code region you live in, and even the car’s color play their roles in the price of your premium.
Before even giving you a quote, insurance companies will perfect a soft check on your credit score. This will confirm the personal details you have provided to them as well as determine your credibility. Generally, they do this for all clients but are particular about applying for monthly payments on their policies.
Keep all these factors in mind when you get your car insurance quote. Liability car insurance is cheaper than a full coverage car insurance policy. This might motivate you to get just a liability auto insurance, but this could be quite risky, as you already know.
While it might seem more expensive at first, understand that a full coverage car insurance policy or at least a comprehensive and collision coverage inclusive policy will help mitigate many unforeseen risks in the future.
Also, in most cases, if you are doing car insurance the right way, you will find that the price difference is not that much. If you aren’t shopping for the bare minimum just to meet state requirements, liability insurance policies are almost the same price as a full coverage insurance policies. So if you find the price difference to be bearable, just go for a full coverage policy.
d) Your tolerance for risk
All forms of insurance are at their roots a transfer of risk. This applies to car insurance too. This is why your risk tolerance is an important criterion when deciding whether to get full coverage or not.
Before deciding how much coverage you want on your car, you will have to analyze all the surrounding factors. Doing this will help you confirm the amount of risk you want to bear in your car.
If you have a high tolerance for risk or risky situations, then you can do without full coverage car insurance. But if you can’t handle risky situations well, then getting a full coverage car insurance will help you minimize your risks.
Once you own or rent a car, the risk of it getting damaged, stolen is never zero. If such a situation does arise with just liability car insurance, you will be responsible for taking care of all the unexpected expenses.
With full coverage insurance, you will be splitting the risk between you and your insurance provider. This will keep your expenses low and help you recover much faster when these unpredicted events occur.
Is your car under a loan or not?
If your car is under a loan or you are about to get a loan on the vehicle, you might be directed towards purchasing full coverage car insurance. Lenders usually request these in order to improve your creditworthiness and protect their own interests. The amount of your full coverage is generally drawn up to match the amount you are borrowing.
Some lenders usually do not have you match the amount your borrowing. Instead, they let you get coverage at lower rates. Confirm with your lender to gain knowledge of their requirements for a loan.
You should also know that financing your car will raise the rates on your premium. This is just for the duration of your loan. Ask your insurance company for more information on this.
Once you have taken a look at these factors, then you will be able to determine if you need full coverage on your car or not. If you can spare the cash and need the coverage, there is no reason not to.
When Should I Drop Full Coverage On My Car?
While full coverage car insurance is a beautiful addition to your car insurance policy, there will be some point in time you have to ask yourself, “should I just drop the full coverage and stick to liability insurance alone?” This question usually pops up when you just finished financing your car, and it is now entirely yours.
Well, it’s not wholly wrong to drop your full coverage insurance. But you shouldn’t drop the insurance just because you can. You should instead find a balance between your tolerance for risk and the affordability of the policy.
While it is quite tempting to do away with the realistically unnecessary insurance, you should also consider that accidents can and do happen. And they come at quite a cost. An insufficient policy will leave you hanging and responsible for most of the brunt of the costs.
Still unconvinced? Here’s a likely scenario.
You purchase a brand new car worth about $40,000. Now, if there’s a need for you to replace the vehicle as a result of an accident for which you are at fault, what do you do? In some situations, you might be able to pay for the replacement as well as any other costs.
But ask yourself this, is it convenient to save up thousands of dollars each year just for this possibility? Realistically, it isn’t. This is where insurance comes in.
So when should you drop full coverage insurance, and when should you keep it? Consider these few factors when making your decision
a) Age and Mileage of the car:
If the car is brand new, with low or zero mileage, then getting auto insurance full coverage vs liability alone becomes a straightforward question to answer. More modern cars attract lower premium rates on your insurance policy. You get all the coverage at a lower and much more affordable cost.
If your car is on the older side, say nearing its 11th birthday, then perhaps dropping full coverage isn’t such a bad idea. Not only will the full coverage cost be higher, but the potential valuation on your claim will be lower than the initial value of the car. This is because depreciation plays a part in the calculations.
Also, if the car is relatively young but has a very high mileage reading, then the value has most likely dropped. So if you are one for frequent long-distance commutes, a full coverage car insurance might not be the best option for you.
If the case is otherwise, go for it.
b) Value and Replacement cost of the car
What’s the current value of your car? You can look at the age, mileage, and wear of the vehicle to determine this. You should also consider whether the vehicle is fully yours or is still under a car loan.
The value of your car should help you decide if the extra cost of full coverage is worth it or not. After all, it would not make any sense to pay hundreds of dollars every month or annually for a car that can’t even match the cost of its repairs in valuation.
If it is also easy to replace, then why get full coverage. After all, if you can comfortably pull the cost of a replacement out of your account, then the full coverage might just be an unnecessary expenditure.
c) The cost of the policy.
What’s the rate on the premium, and what’s your deductible worth? Knowing the answers to these two questions should factor in when deciding to keep full coverage car insurance or not.
If these two costs are not an inconvenience to you, then keeping the coverage might not be such a bad idea. It’s affordable and protects you from unpredictable situations.
But what if you can’t afford them? Then get rid of the full coverage policy. It will only put a hole in your pocket and stress you out even more.
d) What’s the situation of your emergency funds?
If you are still trying to pile up your emergency funds, then consider keeping the full coverage. It will help out in emergency cases, while you are still piling up those funds.
Doing all the necessary math on these factors might seem like a headache, but consider it an actual headache to prevent future headaches, at least in terms of your car or vehicle.
The 10% rule
Still unsure whether to drop the coverage or not? Here’s a pro tip, make use of the 10% rule.
If your full annual coverage costs more than 10% of the value your insurance provider would payout on a claim, then maybe dropping the full coverage isn’t such a bad idea.
Here’s a scenario to make things clear.
Say you bought a car worth $4000, and your deductible on your policy is $1000. Then you’d only be able to get at most $3000 from your provider when you have to file a claim.
If the annual value for your full coverage premium is over $300, then that policy might not be the right fit for you. You can stick with liability insurance vs full coverage. This is the cheaper option.
Saving up insurance costs in readiness for repair needs or replacing your car is a better choice under this rule. It is more affordable and is much more readily available for you than waiting for your claim to be filed and answered.
Sticking with liability insurance alone is a beautiful idea if you own an older vehicle. Full coverage car insurance would just be wasted on such a car and put in a dent in your wallet while at it. This is because the value attached to your vehicle would not be satisfactory in any manner.
If the car is in optimal condition, then you might end up getting a valuation worth thousands of dollars on your vehicle. Nonetheless, you should let your financial circumstances dictate what coverage options you go with. Keep in mind that, while liability insurance is the state’s bare requirement, full coverage car insurance can come in quite useful when you wreck your car.