Policies offer protection for vehicle owners, drivers, third parties and lenders. The question of who needs to be compensated determines the choice of liability or full coverage auto insurance. Circumstances can dictate the choices available to you as well and force you to get basic. Various possibilities, options and choices will be discussed further down but we should first define these two most popular policy types on the market.
By definition, liability only auto insurance compensates other people’s property damages and injuries that are caused by you. It doesn’t include possible damages to your own automobile or injuries to you and family. It is the most basic level required by the state. You clearly have no choice but buy at least third party.
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 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 it a full policy even though some of them may provide rental car and even life provision as well. In other words, it doesn’t mean you are protected whatever happens. You should check and familiarize with what is actually included and what are the limitations.
You simply consider including your car or not when you contemplate on buying automobile insurance full coverage vs. liability only. You buy legally required third party in both cases.
Full Coverage vs Liability Vehicle 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 the cheapest of the two. Also, you may be required to satisfy the lender’s requirements if you have a loan on the vehicle.
Cost of the premium and the current financial position are two important factors in making a choice. Luckily we have already worked out how much is car insurance for liability only and full coverage in another post. The price difference will depend on several factors like which state you live in, how bad is the driving record and what type of an auto you own. You can find it out pretty quickly by getting cheap 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 an automobile that attracts low rates.
When to Drop Full Coverage Auto Insurance to Liability Only
You probably need to own the automobile outright to be in a position to shed 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 policy to make a claim on.
There are no clear guidelines on when to drop full coverage automobile insurance that work for everyone although at times it may make sense to go with the cheaper one. 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 value of you 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 it is worth less than $4,000.
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 $4,000 and 10% rule support each other. Let’s say it is $4,000 and the deductible is $1,000. Should it be totaled you would receive $3,000 from the insurer after paying the deductible. According to 10% rule, it may be a good idea to have just the basic if the premium difference between them is more than $300 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 C & C 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.
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 shouldn’t touch 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 few days after you relegate to third party on its own. This would be a very unfortunate situation but it can happen. That is why you shouldn’t stop insuring it 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 state required policy if you are asking what is the cheapest automobile insurance I can buy. If you are looking to include your car, you will probably buy full coverage as well as securing good level of liability. Prices between the two can be a problem but the protection offered is considerably valuable too. If you want a better security but premium is too high you can probably find another carrier that can offer the same cheaper. So, get a few quotes.
Changes that Can Force Full Coverage or Liability Only
Usually, motorists don’t struggle to decide on what they want. Generally, young drivers with budget cars go for the basic because rates are pretty expensive and they don’t need to worry about their not much expensive vehicles. On the other hand, someone with a nice automobile and low rates can pick up an affordable policy that makes it easier to choose this option. If you need to make a decision now it may mean that 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 the minimum. However, switching it with a brand new automobile will require spending a bit for more, especially if you borrowed money. 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 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 premium after accident claims. One of those things could be to get an older car and slash a bit off the policy when the premium jumps suddenly to counter the affects of the accident on the cost.
Change of Credit History: It affects rates as well. You can enjoy great deals when you have good credit and lose this privilege when you lose points on the score. You would suddenly have a decision to make, as it isn’t affordable anymore.
Change of Relationships: You can witness sudden premium increase after marrying to or moving in with someone with bad driving record. Previously the 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: It 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 cut collision and comprehensive but you should be aware of what you will be giving up. Can you manage losing valuable protection for your automobile? People think that they are careful and haven’t had any accident for years anyway. However, they are unpredictable by definition. It is always better to be safe than sorry.
Things to Know Before Dropping Collision and Comprehensive
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 C and C. Otherwise, why would you give them up? However, you could try to increase deductibles and see how much this will save you. If it is enough, increasing deductibles can be seen as halfway.
You pay a little bit more if you ever have an accident but you still retain the option to claim some money and this can be used when it 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. However, it doesn’t probably give you as large savings as dumping a portion of the policy. And yet it can be an agreeable compromise. That is why it is worth considering.
Furthermore, you should consider other ways to save before taking the drastic step of chopping and changing. Thankfully, you don’t lose anything when you get a cheaper policy by shopping around. Yes, you may need to switch companies but this doesn’t mean that your new provider will be worse than the old one. You would be surprised how often the largest companies beat the smaller, less reputable ones in price. That is why they are the biggest.
If you can qualify for further discounts you may not even need to chance the 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 prices while they offer their cheaper rates to new customers as long as you don’t complain.