Full Coverage vs Liability Only Car Insurance

Every vehicle owner is required by their state laws to buy at least liability automobile insurance which provides compensation for third parties in case the insured car causes them injuries and damages. This is the cheapest policy available if people just want to be able to drive legally and not worry about damages to their own auto. Optionally, motorists can insure their own cars against traffic accidents, theft, vandalism and many other perils by adding Collision and Comprehensive on top of the legally required Liability coverage that gives them a more protective policy usually known as full coverage, which can be twice more expensive.

A Liability only vehicle insurance policy would be about 50% cheaper than full coverage. However, the difference in premiums narrows when you have good driving history and an automobile that attracts low rates. Also, the gap widens or narrows depending on the state you live in.

Auto insurance policies offer protection for vehicle owners, drivers, third parties and lenders. Based on personal requirements, value of the vehicle and budgets, motorists can choose to buy as little coverage as possible to comply with the state laws or make sure they have sufficient protections for their own losses as well as possible claims against them.

More than two thirds of motorists buy full insurance with Liability, Collision and Comprehensive coverage because they have valuable enough cars to justify paying a little bit more.

By definition, Liability only vehicle insurance compensates other people’s property damages and injuries which are caused by you. It doesn’t include possible damages to your own automobile or injuries to you and family, unless you live in a no-fault state. Also, this is the part every state insists on so you clearly have no choice but to buy at least a third party policy if you want to drive your automobile.

Full coverage car insurance has three components, which are Liability, Collision and Comprehensive. It protects both third parties and you (and the lender) as it pays if the vehicle is damaged or totaled. Collision 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 it a full policy and some of them may come with Personal Injury Protection and Uninsured Motorist coverage already included depending on the state you live in. You can add these even if they aren’t included as well as Rental Car Reimbursement, Accident Forgiveness, towing and so on as well. But you need to buy Collision and Comprehensive to add most of the other add-ons.

You simply consider including your car or not when you contemplate on buying full coverage automobile insurance vs liability only. You must have the legally required third party in both cases.

Costs and Circumstances

Premiums, the applicant’s current financial position and other circumstances often influence the decision. The price difference between the two will depend on several factors like which state you live in, how bad the driving records are and what type of an auto you own. It may be best to get a few quotes before you consider your options.

Mature and experienced drivers with no accident and ticket won’t probably see much of a difference in costs between liability only and full coverage auto insurance since their low-risk profile would allow them to get the best rates. Equally, they are the type of people who are unlikely to make a claim and perhaps less pressed for a high level of protection. Also, they may have enough financial backup that they may choose not to bother insuring a car worth $5,000 and save the premium.

On the other hand, the rates for high-risk drivers like youngsters and people with a recent accident or serious traffic violation could be so high that they may actually make a point of purchasing an older automobile and buy liability only insurance for it until their rates come down a bit.

Choosing between Liability and Full Coverage

You probably need to own the automobile outright to be in a position to make a choice about giving up Collision and Comprehensive. Rightfully, a lienholder would object to it when you have a 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 something you don’t need. On the other hand, you don’t want to be in a position after an incident where you don’t have money to pay for repairs (or a replacement vehicle) and automobile insurance coverage to compensate you for the losses.

Everyone is different in the way they look at risk. If you are looking to insure your car for damages and accidents, you will probably buy full coverage as well as securing a good level of liability. Prices between the two can be a problem but the protection offered is considerably valuable too. If you want better security but the premium is too high, you shouldn’t give up before shopping around for the best prices.

It often comes down to how much risk you are prepared to take. Consider the following points before making a selection.

Vehicle Replacement Value: You buy Comprehensive and Collision in order to insure your car. So, keeping or dropping these depends on the value of your vehicle. Normally owners of fairly new automobiles shouldn’t even bother to consider it. You should start looking into dumping C & C when it is about 8 – 10 years old. Most experts agree that you can drop Collision and Comprehensive if the car is worth less than $5,000.

Another way of looking at it is the 10% rule that says, you can give it up if the annual premium cost for having it is more than 10% of your automobile’s current market value.

Let’s see if $5,000 and the 10% rule support each other. Let’s say it is $5,000 and the deductible is $1,000. Should your car be totaled you would receive $4,000 from the insurer after paying the deductible. According to the 10% rule, it may be a good idea to have just the basics if the premium difference between liability only and full coverage vehicle insurance is more than $400 a year.

Besides, premiums go up after an accident claim and therefore you may not want to make a claim anyway. Remember to put the savings into an emergency fund just in case you may need to pay for repairs.

Price Gap : There is not much point in giving up full coverage if you don’t save enough money as a result of it. Always compare quotes for both types and see if the difference is big enough to consider letting some valuable protection go. Remember that you need to spend some money for Liability only car insurance anyway and you would only be saving the price difference when you decide not to protect your own vehicle with a full policy.

Size of Emergency Fund: If you don’t have enough money in a savings account you cannot pay for even small repairs, let alone buying another car if it is totaled. If this is the case, you should make sure you have the protection for it. Otherwise, you can be in real trouble especially if you are highly dependent on an automobile 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 a few days after you are relegated to the third party on its own. This would be a very unfortunate situation but it can happen. That is why you shouldn’t stop insuring your automobile for physical losses unless you have sufficient funds to deal with the worst-case scenario.

Usually, motorists don’t struggle picking the right policy for their needs. Generally, young drivers with budget cars go for the cheapest car insurance (usually Liability only) they can get because rates are pretty expensive and they don’t need to worry about their cheap vehicles. Besides, having a claim would make their risk situation even worse. On the other hand, someone with a nice automobile and low rates can pick up an affordable policy that makes it easier to pay for full coverage auto insurance.