Insurance policies offer protection for vehicle owners, drivers, third parties and lenders. The question of who needs to be protected determines the choice of liability or full coverage car insurance. Your circumstances can dictate the choices available to you as well and force you to get basic or full coverage. Various possibilities, options and choices will be discussed further down but we should first define these two most popular policy types on the market.
Defining Liability and Full Coverage Auto Insurance
By definition, liability auto insurance only covers other people’s property damages and injuries that are caused by you. It doesn’t cover possible damages to your own automobile or injuries to you and your family. It is the most basic level of insurance and required by your state. You clearly have no choice but buy at least third party liability auto insurance.
Full coverage car insurance refers to a policy that contains three different covers, which are Liability, Collision and Comprehensive Coverage. Full coverage auto insurance protects both third parties and you (and your lender) as it pays if your vehicle is damaged or totaled. Collision Coverage pays if you collide with another vehicle or object, and Comprehensive Coverage takes care of most other perils like vandalism, weather related and accidental damages, fire and theft. These three main components would be enough to call your policy full coverage even though some policies may provide rental car coverage and even life insurance as well. In other words, full coverage doesn’t mean you are covered whatever happens. You should check and familiarize yourself with what is actually covered and what are the limitations of your policy. You can find more detailed explanation on what does auto insurance cover?
When you contemplate buying auto insurance full coverage vs liability you simply consider insuring your car or not. You buy legally required third party liability coverage in both cases. But Collision and Comprehensive Coverage for your car only comes with full coverage.
Full Coverage vs Liability Car Insurance Cost
For several reasons people may not be as free as it looks to make a choice in between two types of policies. For example, budgetary constraints may force you to buy liability only car insurance coverage. Also, you may be required to buy full coverage to satisfy your lender’s requirements if you have a loan on the vehicle.
Cost of auto insurance and your current financial position are two important factors in making a choice. Luckily we have already covered how much is car insurance for liability only and full coverage in another article extensively. The premium difference between a liability only and full coverage policy will depend on several factors like which state you live in, how bad is your driving record and what type of an auto you own. You can find it out pretty quickly by getting cheap auto insurance quotes online right here.
You shouldn’t just pick a liability only policy thinking that full coverage will be a lot more expensive. Sometimes, the difference can be only few hundred dollars, especially if you have good driving history and a cheap to insure automobile.
When to Drop Full Coverage Auto Insurance to Liability Only
You probably need to own your automobile outright to be in a position to just go with liability only auto insurance by dropping Collision and Comprehensive Coverage. Rightfully, a lienholder would object to dropping full coverage when you have auto loan.
Then, it would be about finding a good balance between affordability and risk tolerance. On the one hand, you don’t want to waste money on insurance coverage you don’t need. On the other hand, you don’t want to be in a position after an accident where you don’t have money to pay for repairs (or a replacement vehicle) and coverage to make a claim on.
There are no clear guidelines on when to drop full coverage car insurance that work for everyone although at times it may make sense to go with liability coverage only. It often comes down to how much risk you are prepared to take. Consider the following points before making your mind up.
Vehicle Replacement Value: You buy Comprehensive and Collision Covers in order to insure your car. So, keeping or dropping these covers depends on value of you vehicle. Normally owners of fairly new automobiles shouldn’t even bother to consider liability only policies. You should start looking into dropping C & C when your auto is about 8 – 10 years old. Most experts agree that you can drop Collision and Comprehensive Coverage if your auto is worth less than $4,000.
Another way of looking at it is the 10% rule that says, you can drop full coverage auto insurance if the annual premium cost for having it is more than 10% of your automobile’s current market value.
Let’s see if $4,000 and 10% rule support each other. Let’s say your vehicle is $4,000 and your policy deductible is $1,000. Should your car be totaled you would receive $3,000 from your insurer after paying the deductible. According to 10% rule, it may be a good idea to drop full coverage and keep only liability if the premium difference between full coverage and liability only is more than $300 a year.
Besides, your insurance premium goes up after an accident claim and therefore you may not want to make a claim anyway. Remember to put premium savings into an emergency fund just in case you may need to pay for repairs.
Full Coverage vs Liability Car Insurance Cost: There is not much point in dropping collision and comprehensive coverage if you don’t save enough money as a result of it. Always compare auto insurance quotes for both types of coverage and see if the difference is big enough to consider dropping off some valuable coverage.
Size of your Emergency Fund: If you don’t have enough money in your savings account you cannot pay for even small repairs, let alone buying another car if yours is totaled. If this is the case, you should keep full coverage. Otherwise, you can be in real trouble especially if you are highly dependent on your car to go to work and do other things like shopping and picking kids from school.
These tips should work out on average. But there is always a chance that you have an accident only few days after dropping the coverage that insures your car. This would be a very unfortunate situation but it can happen. That is why you shouldn’t stop insuring your auto unless you have sufficient funds to deal with the worst-case scenario.
Everyone is different in the way they look at risk. You are probably looking for a liability only policy if you are asking what is the cheapest car insurance I can buy. If you are looking to insure your car as well as buying good level of liability coverage you will probably buy a full coverage policy. Prices between the two types of coverage would be different but the protection offered is considerably different too. If you want full coverage but premium is too high you can probably find another insurer that can offer the same coverage cheaper. So, get a few quotes.
Changes that Can Force Full Coverage or Liability Car Insurance
Usually, motorists don’t struggle to decide on what types of coverage they want. Generally, young drivers with budget cars go for liability only coverage because their rates are pretty expensive and they don’t need to worry about insuring their not much expensive vehicles. On the other hand, someone with a nice automobile and cheap rates can pick up cheap full coverage car insurance that makes it easier to choose this option. If you need to make liability vs full coverage auto insurance decision now it may mean that your circumstances have changed and the decision could go either way. Here are some of those changes in circumstances that can force your hand.
Change of Car or Its Value: When you have an old starter car that is not worth much you may have no reason to look any further than liability only policy. However, switching it with a brand new automobile will force your hand to buy full coverage for it, especially if you borrowed to buy it. So, people who own their automobiles outright would be more flexible in their choices as they can decide on when to drop collision insurance independently.
Change of Driving Records: If you haven’t had any adverse record on your driving for some time you may be enjoying great rates. However, this can change pretty quickly after a serious at fault accident or a reckless driving ticket that force you to do things to get lower car insurance after accident claims. One of those things could be to get a cheaper car and drop coverage when your premium jumps suddenly to counter the affects of the accident on your premium.
Change of Credit History: Your credit score affects your rates as well. You can enjoy great rates when you have good credit and lose this privilege when you drop points on your credit score. You would suddenly have a decision to make, as your premium isn’t affordable anymore.
Change of Relationships: You can witness sudden car insurance increase after marrying to or moving in with someone with bad driving record. Previously the full coverage vs liability cost difference may have been negligible. However, the gap opens up when you have a high-risk driver in your household that forces you to choose between a cheaper policy and paying more.
Change of Address: Your address is important in several ways. You can enjoy great rates in a nice town in the country. But you would have to pay at least twice and sometimes three or four times more when you move into a metropolitan city.
You may think that it is a good idea to drop collision and comprehensive coverage but you should be aware of car insurance full coverage vs liability comparison. You lose valuable protection for your automobile when you go liability only. People think that they are good drivers and haven’t had any accident for years anyway. However, accidents are unpredictable by definition. It is always better to be safe than sorry.
Things to Know Before Dropping Collision and Comprehensive Coverage
Generally, there are several ways of solving a problem like finding affordable premium when you look closely. You can probably save some money if you give up Collision and Comprehensive. Otherwise, why would you give them up? However, you could try to increase your deductibles and see how much this will save you money. If the savings are enough, increasing deductibles can be seen as halfway between buying liability only and full coverage.
You pay a little bit more if you ever have an accident but you still retain your option to claim some money on your insurer and this can be used when your auto is totaled. You may choose to pay small damages out of pocket when they are slightly over the deductible but not high enough to warrant a claim and face premium increase from next renewal.
Increasing deductibles allows you to keep the option of making claims for damages to your automobile. However, it doesn’t probably give you as large savings as dropping Comprehensive and Collision Coverage. And yet it can be an agreeable compromise. That is why it is worth considering.
Furthermore, you should consider other ways to save on car insurance before taking the drastic step of chopping and changing your policy. Unlike reducing coverage, you don’t lose anything when you get cheaper auto insurance by shopping around. Yes, you may need to switch insurers but this doesn’t mean that your new insurer will be worse than your old one. You would be surprised how often the largest auto insurance companies beat the smaller, less reputable ones in price. That is why they are the biggest insurers.
If you can qualify for further discounts you may not even need to chance your provider. Remember that companies don’t necessarily keep looking for the best rates and largest discounts for you at each renewal. It is up to you to check that they are really offering you the best deals. Otherwise, they can keep you on old rates while they offer their cheaper rates to new customers as long as you don’t complain.