Liability vs Full Coverage Car Insurance: Which Is Right for Me?

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When you’re shopping for the right car insurance – something that’s a legal requirement in most areas when you own a car – one of the biggest questions that comes your way is whether or not you should have liability (or minimum) coverage or a full coverage policy on your car. Liability insurance is usually cheaper, but a full coverage policy will cover more. Which is the right answer?

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The answer is: it depends. Overall, the average national insurance cost is $1,502 per year, so you can expect to pay a higher rate if you prefer full coverage or a little bit less if you’d rather just have liability insurance.

In this post, we’ll outline the differences between the two types of policies and help you determine which kind is right for you.

What is covered with liability insurance?

Liability coverage does not cover any damage to your own vehicle in the case of an accident. What it does cover is any damage done to other vehicles that you’re legally obligated to cover.

For example, if you’re in a traffic accident where you’re at fault and you damage another car, liability insurance kicks in. Liability coverage doesn’t typically have a deductible, meaning that if you have to use the insurance, nothing will come out of your pocket.

What is covered on a full coverage policy?

A full coverage car insurance policy typically includes collision and comprehensive coverage. Collision coverage is used to cover damage to your own vehicle when you are involved in an at-fault accident. Comprehensive coverage covers the damage done to other vehicles, but it also combines with collision coverage to cover damage done to your own vehicle, not just from traffic accidents, but from many natural sources. If your car is damaged in a storm, for example, comprehensive coverage kicks in.

When you make a claim on comprehensive insurance, however, there is usually a deductible, meaning you have to pay for some of the damage out of pocket (broken windshields are often an exception). Remember, though, that liability coverage is usually a part of comprehensive insurance – you get the liability coverage described above, along with the coverage of your own vehicle.

Which coverage is right for me?

When to choose liability insurance

For example, if you’re driving an old car that’s fully paid for, basic liability coverage is probably the best option. You’re likely looking at auto failure in the next several years anyway, so an accident would just cause that failure to happen earlier. Also, considering that the deductible on the insurance (often $500 or more) would add up to a significant portion of the value of your car, even a claim on the insurance wouldn’t save you much money.

Also, if you have paid for any car and have a significant emergency fund, liability coverage is probably better. In this case, the difference between the monthly cost of comprehensive and liability insurance is significant. If you would be able to shoulder the cost of a vehicle replacement out of your pocket due to significant savings, I’d probably skip the comprehensive insurance.

Another situation that might push you toward liability insurance is easy access to public transit. If you use your car rarely and will be able to function without it for a while, comprehensive insurance may be unnecessary for you.

When to choose full coverage insurance

For most other situations, having a full coverage policy is probably a better choice.

For example, if you still owe a significant amount of money on your current automobile and you total it out, you’re still liable for that money plus you’ll need the resources to acquire another car. That can be a significant amount of money needed very quickly.

Also, most people do not have large enough emergency funds or cash reserves to simply go buy another car in a very short time frame. Many people are able to simply get a car loan, but even then, you’re putting yourself in a debt situation.

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The cost of minimum and full coverage car insurance

Obviously, the monthly cost for liability coverage is going to be less than the monthly cost of a full coverage policy. So, the real question is whether or not the additional benefits of the extra coverage are worth it.

For me, the question comes down to this: If your car were completely totaled, could you afford to pay off any remaining debt on it out of pocket as well as buy yourself a comparable car to replace it?

If you think about that question for a bit, it becomes pretty clear that liability works best in some cases and full coverage insurance works best in other cases.

Depending on the level of coverage you need, your rate can vary greatly. Typically, upgrading from liability-only insurance to full coverage will add on an additional $851 per year. Check out the average rates of full-coverage premiums versus liability-only rates from The Zebra in the table below.

Company Full-Coverage Premium Liability-Only Premium
Allstate $1,572 $771
Geico $1,418 $449
Farmers $1,354 $447
Liberty Mutual $1,472 $876
Nationwide $1,288 $603
Progressive $1,458 $638
State Farm $1,496 $585
USAA $1,468 $349

Frequently asked questions

What minimum coverage is required for my state?

Each state has its own set of requirements when it comes to minimum coverage. Make sure to check your state minimum coverage requirements before choosing between a liability or full coverage policy.

Do you need collision coverage on an older car?

It may not be worth it to take out collision coverage on an older car. If your vehicle isn’t worth a lot of money, you may be better off paying for repairs on your own in the event of an accident, rather than paying a monthly premium.

Should I drop my full coverage?

As your car nears the end of its usable life, you should consider dropping some pieces of your full coverage policy. At a certain point, the eventual payout on an old car isn’t worth the price you’d end up paying in premiums. It’s a personal decision, but you may be more suited to take the risk of not having complete coverage in the case of an accident.

The bottom line

The savings of liability insurance should be yet another call to get your financial house in order. If you’re in a situation where you don’t have a significant emergency fund and are living paycheck to paycheck, the potential crisis that would arise from a devastating car accident can be troublesome and is likely pushing you toward comprehensive insurance. Without that pressure, liability looks like a better option and it has a lower monthly cost.

What about us? Right now, we have liability insurance on our older vehicle and comprehensive on our newer one, but we’re on the verge of switching them both to liability. This means lower monthly costs for us compared to running comprehensive insurance on both. We’re able to make that choice because we’re careful in other financial areas and have a very healthy emergency fund.

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