If you own or drive a car, you need auto insurance to protect yourself and others from the financial consequences of accidents, theft, vandalism, and other risks. But what type of auto insurance do you need? And how much coverage do you need? In this article, we will explain the differences between liability and full-coverage auto insurance, and help you make the right choice for your situation.
Understanding Liability Insurance
Liability auto insurance is the most basic and required in most jurisdictions. It pays for injuries and property damage you cause in an accident. Liability insurance does not cover personal injury.
What is Liability Insurance?
Liability insurance consists of two parts: bodily injury liability and property damage liability. Bodily injury liability pays for the medical expenses, lost wages, pain and suffering, and funeral costs of the people that you injure in an accident. Property damage liability pays for the repair or replacement of the vehicles, buildings, fences, or other objects that you damage in an accident.
Coverage Limits
Liability insurance has limits, which are the maximum amounts that your insurer will pay for a claim. You can choose your liability limits when you buy your policy, but they must meet or exceed the minimum requirements of your state. Liability limits are usually expressed as three numbers, such as 25/50/25. This means that your policy will pay up to $25,000 per person for bodily injury, up to $50,000 per accident for bodily injury, and up to $25,000 per accident for property damage.
What is Covered?
Liability insurance covers the following scenarios:
- You hit another car and cause damage or injury to the driver or passengers.
- You hit a pedestrian or a cyclist and cause injury or death.
- You hit a building, a fence, a pole, or another object and cause damage.
- You are sued by someone who claims that you are responsible for their damages or injuries.
Understanding Full Coverage Insurance
Full coverage insurance is a term that usually refers to an auto policy that combines liability insurance with comprehensive and collision insurance. This combination pays for damage to your car and also covers injuries or damage you cause to others.
What is Full Coverage Insurance?
Full coverage insurance consists of three parts: liability insurance, comprehensive insurance, and collision insurance. Liability insurance, as explained above, covers the damages and injuries that you cause to others. Comprehensive insurance covers the damage to your car caused by events that are out of your control, such as fire, theft, vandalism, hail, flood, animal collision, or falling objects. Collision insurance covers the damage to your car caused by a collision with another vehicle or object, regardless of who is at fault.
Coverage Options
Full coverage insurance has options that you can add to customize your policy according to your needs and preferences. Some of these options are:
- Medical payments coverage: This pays for your medical expenses or those of your passengers after an accident, regardless of who is at fault.
- Uninsured/underinsured motorist coverage: This pays for your damages or injuries if you are hit by a driver who has no insurance or not enough insurance to cover your losses.
- Roadside assistance: This provides services such as towing, battery jump-starting, flat tire changing, lockout assistance, or fuel delivery if your car breaks down on the road.
- Rental vehicle reimbursement: This covers automobile rentals while your car is being repaired following a covered claim.
What is Covered?
Full coverage insurance covers the following scenarios:
- You hit another car and cause damage or injury to the driver or passengers.
- You hit a pedestrian or a cyclist and cause injury or death.
- You hit a building, a fence, a pole, or another object and cause damage.
- You are sued by someone who claims that you are responsible for their damages or injuries.
- Your car is stolen, vandalized, burned, flooded, or damaged by hail or other natural disasters.
- Your car is hit by an animal or a falling object.
- Your car is damaged by a collision with another vehicle or object.
Comparing Liability vs. Full Coverage
The main difference between liability and full coverage auto insurance is that liability only covers the damages and injuries that you cause to others. At the same time, full coverage also covers the damages to your own car. Therefore, full coverage offers more protection than liability, but it also costs more.
Insurance Costs
The cost of auto insurance depends on many factors, such as your age, gender, driving record, credit score, vehicle type, location, mileage, and coverage levels. However, on average, full-coverage auto insurance costs about twice as much as liability-only auto insurance. According to Zebra’s analysis, the average cost of full-coverage auto insurance in 2023 is $133 per month, while the average cost of liability-only auto insurance is $66 per month.
Factors to Consider When Choosing
When deciding whether to buy liability or full-coverage auto insurance, you should consider the following factors:
- Your state’s minimum requirements: You must comply with the laws of your state regarding the minimum amount of liability insurance that you need to carry. If you fail to do so, you may face fines, license suspension, or even jail time.
- Your lender’s or lessor’s requirements: If you finance or lease your car, your lender or lessor may require you to have full coverage auto insurance to protect their investment. If you fail to do so, they may repossess your car or charge you extra fees.
- Your car’s value: If your car is worth more than $4,000, it may make sense to have full coverage auto insurance to protect it from total loss. However, if your car is worth less than $2,000, it may not be worth paying for full coverage, as the cost of the premiums may exceed the value of the car.
- Your personal risk: If you have a high-risk profile, such as a poor driving record, a low credit score, a high-mileage vehicle, or a high-crime area, you may want to have full coverage auto insurance to protect yourself from potential losses. However, if you have a low-risk profile, such as a clean driving record, a good credit score, a low-mileage vehicle, or a safe area, you can save money by choosing liability-only auto insurance.
Assessing Personal Risk
To assess your personal risk, you can use online tools such as calculators or comparison sites that can help you compare different auto insurance quotes and coverages based on your information. You can also check your state’s average auto insurance rates and see how they compare to the national average.
Making the Right Choice
Liability or full coverage vehicle insurance requires careful consideration. It depends on your demands, interests, and budget. Tips for making the correct choice:
Evaluating Individual Needs
You should evaluate your individual needs and determine how much coverage you need and can afford. You should consider the following questions:
- How much can you afford to pay for auto insurance premiums?
- How much can you afford to pay out of pocket for repairs or replacements if your car is damaged or totaled?
- How much can you afford to pay for medical bills or legal fees if you are involved in an accident that is your fault?
- How much do you value your peace of mind and security?
Balancing Cost and Coverage
You should balance the cost and coverage of auto insurance and find the best value for your money. You should consider the following tips:
- Shop around and compare different auto insurance quotes and coverages from multiple insurers.
- Choose higher deductibles for comprehensive and collision coverages to lower your premiums.
- Choose lower liability limits if you have few assets or income to protect from lawsuits.
- Choose higher liability limits if you have significant assets or income to protect from lawsuits.
- Take advantage of discounts that may apply to you, such as safe driver, good student, multi-policy, multi-car, or anti-theft device discounts.
- Review your policy periodically and adjust your coverages according to your changing needs and circumstances.
Seeking Professional Advice
You should seek professional advice from a licensed agent or broker who can help you understand your options and recommend the best policy for you. You should consider the following tips:
- Ask for referrals from friends, family, or colleagues who have similar needs and preferences as you.
- Check the reputation and ratings of the agent or broker online or through consumer agencies such as the Better Business Bureau or the National Association of Insurance Commissioners.
- Ask questions and clarify any doubts or concerns that you may have about the policy terms, conditions, exclusions, and limitations.
- Read the policy carefully before signing it and make sure that it matches your expectations and needs.
