Liability-only vs. full coverage insurance
Simply put, liability-only car insurance is a type of policy that only provides coverage for damages you cause, not damages you sustain. Full coverage builds on liability-only and adds additional coverage, including coverage for damages to your vehicle from collisions as well as non-collision incidents such as storms and fires. In the U.S., the average cost of car insurance for minimum coverage — the lowest coverage level of insurance that you can purchase — is $622 per year, while full coverage costs an average of $2,014 per year.
Keep in mind, though, that your auto insurance needs will likely change over time. You may find that full coverage is the best option for you now, while in the future, you may be more apt to choose liability-only. Reassessing your needs once in a while, especially if you’ve recently gone through a life change, can help you align your coverage with your circumstances. Below, we delve deeper into the differences between liability-only and full coverage to help you determine which is best for you as you gather car insurance quotes.
Liability-only car insurance
Liability car insurance coverage is the part of your policy that pays for the injuries and damages you cause to someone else in an at-fault auto accident. Most states require drivers to carry at least a minimum car insurance coverage limit, often called “minimum coverage.” However, you can buy higher liability limits than required by your state and still have a “liability-only” policy, as long as you don’t add coverage for damage to your vehicle.
Liability coverage is broken down into two parts:
- Bodily injury liability: This coverage pays for the injuries you cause to another party in an at-fault accident.
- Property damage liability: This portion of your liability coverage pays for the damages you cause to another’s property, such as another vehicle, a fence or a building.
Liability coverage is often listed as split limits, which are listed in a bodily injury per person / bodily injury per accident / property damage per accident format. However, your liability coverage may also be a “combined single limit,” meaning it’s one number that can be used flexibly to cover the damages and injuries you cause.
Some states also require other coverage types as part of their minimum coverage requirements, including:
- Personal injury protection (PIP): This coverage pays for your medical bills and your passengers’ medical bills if you are injured in an accident, regardless of fault. PIP may also pay for lost wages and the costs for household services you can’t perform due to injuries. In no-fault states, PIP is required.
- Uninsured and underinsured motorist: These two coverage types pay for injuries you sustain if you are hit by a driver who does not have insurance or does not have enough insurance to cover your bills. This also provides coverage if you are a pedestrian hit by an uninsured motorist or a victim of a hit-and-run accident.
- Medical payments: Although only required in a few states, medical payments coverage is similar to PIP. It pays for your injuries and the injuries to your passengers regardless of fault. However, medical payments coverage does not cover lost wages or household services like PIP.
Takeaway: You must purchase a car insurance policy with at least your state’s minimum required coverage types and limits in states where car insurance is required. However, you can purchase higher liability limits and other coverage types, such as medical payments, and still have a “liability-only” policy.
Full coverage car insurance
Full coverage car insurance refers to a policy that has all the state-required coverage types as well as comprehensive and collision coverage, which add coverage for damage to your vehicle. While it’s possible to have a full coverage policy with low liability limits, many full coverage policies have higher limits for liability coverage to offer more robust coverage and greater financial protection for you and your family.
Full coverage policies include:
- Collision: This coverage pays for your vehicle’s damages from collisions, such as hitting another vehicle, tree or building. Collision coverage will help cover your vehicle’s repairs in a covered claim, regardless of fault.
- Comprehensive: Often called “other-than-collision” coverage, comprehensive pays for non-collision damages, such as damages caused by fire, theft, weather, vandalism or striking an animal.
You may also be able to add some additional coverage types, known as endorsements, to full coverage policies:
- Rental reimbursement: This coverage will pay for a rental car if your vehicle is not driveable and is being repaired or replaced by a claim covered under your comprehensive or collision coverage. There is generally a per-day coverage limit and a total maximum amount of coverage limit.
- Roadside assistance: This endorsement pays for service calls needed for your vehicle, like a tow, jump start or tire repair service.
- Gap insurance: Gap coverage is designed to pay the difference between your new car’s actual cash value and the amount you owe on a loan or lease. If your vehicle is totaled or stolen and you owe more than the car is worth, gap coverage pays the difference.
Takeaway: A full coverage policy is generally more expensive than a liability-only policy, but it provides more financial protection and often has higher liability limits. Full coverage is often required when a vehicle is financed or leased. Additionally, you must have full coverage to qualify for several common endorsements, including car rental coverage and roadside assistance.
Source: thesimpledollar.com