Full Coverage vs. Liability-Only Auto Insurance: A Comprehensive Guide

As long as you are not financing a vehicle, you will have a choice between carrying liability-only insurance coverage, which pays for injuries and damage sustained by others due to your negligence, and full coverage. Full coverage refers to carrying liability as well as comprehensive and collision insurance, which pays for damage to your own vehicle. Carrying full coverage has a number of advantages and disadvantages when compared to liability-only coverage.

Tort Vs. No-Fault

State law can play a role in determining the benefits of carrying physical damage coverage. If your state follows a tort system where the at-fault driver's insurance pays for all damages, full coverage is not always necessary as long as the other driver is at fault. However, if you live in a no-fault state where each driver pays for damages to her own vehicle regardless of fault, full coverage is much more important. Of course, even if you live in a tort state, a one-car or at-fault accident will still require you to pay for your damages under your own policy.

Cost

Carrying full coverage is much more expensive than liability-only, as it can consist of up to 50 percent of your total premium. For older vehicles with diminished value, the amount of premium you pay for full coverage may not justify the cost of carrying full coverage. As a rule of thumb, if your premium for comprehensive and collision is more than 10 percent of your vehicle's total value, consider carrying liability-only coverage. However, if your vehicle is financed, your lender will require you to maintain full coverage until the vehicle is paid off.

Replacing a Vehicle

Full coverage will prevent the need to pay for the full amount of a replacement vehicle out of your own pocket. If your vehicle is demolished in an accident or stolen and not recovered, your insurance company will pay you the vehicle's actual cash value, which is its market value adjusted for things like depreciation and mileage, minus your deductible. Your settlement can help you pay off any vehicle loan or purchase a new vehicle.

Drivng Older Vehicles

If you prefer driving older vehicles and have money set aside for repairs or to purchase another older vehicle as needed, you may be able to get by with liability-only coverage. You will save significant money on your insurance premium without jeopardizing your ability to keep a vehicle on the road. If you drive infrequently or live in an area where vehicle theft is uncommon, carrying liability-only may be a more cost-effective strategy.