Full Coverage Vs Liability Only
In the world of auto insurance, you’ve got options… plenty of them. There are dozens of providers, and many more who do specialty coverage.
Today I’m going to break down the difference in full coverage and liability only insurance.
Liability Coverage
Each state has their own minimum guidelines for liability coverage that is required before you can legally drive your car.
It’s broken into three numbers, typically expressed like this:
25/50/25
The first part covers injuries and medical payments. It’s the amount that your insurance company will pay for injuries sustained by a single individual. In the example above (I used Nebraska’s minimum requirements), that means you need to have at least $25,000 in coverage to pay for any injuries to one person caused by you if you’re found to be at fault in an accident.
The second number refers to the maximum amount that your insurance company will pay for all injuries in an accident.
The third number is to cover property damage (the other persons car, for example).
Using the numbers above that means $25,000 of bodily injury coverage per victim, $50,000 of bodily injury coverage per accident and $25,000 of property damage coverage per accident.
Remember that the legal minimum is just that, the very least required by law. In most cases you’re going to want more than that, a lot more.
Let me explain.
Let’s say you’re in an accident with a Porsche 911 Turbo with two people in the car and there are injuries and you’re only covered by the legal minimums.
Let’s say both people are injuries the first person only has minor injuries and their injuries are total $2,000. The other person is more seriously injured and has $100,000 in bodily injuries.
The insurance company will cover all injuries of the first person since it’s covered by your $25,000 per person.
The second person, however, has $75,000 in injuries your insurance company won’t cover.
Let’s also say the car is totaled… I’ve got some bad news for you, you just wrecked a $125,000 car and you only have $25,000 in coverage for property damage.
You’re now on the hook for $175,000 ($75,000 from injuries sustained to person 2 and $100,000 for property damage).
That example might be a little bit extreme, but a good percentage of cars, like a Ford Explorer, on the road cost more than $25,000 to replace. Keep in mind medical costs are typically the biggest cost in a serious accident so make sure you set those well above the legal minimums.
Full Coverage
Now let’s talk about “full coverage” car insurance. Full coverage actually refers to a combination of three policies: collision, comprehensive, and liability.
Legally, you’re only required to have liability insurance. However, if you have a loan on your car, then you’re required to have full coverage. It’ll be written into the terms of your loan.
Collision covers just what it sounds like. It covers damages to your car in the event of an accident where you’re at fault. If you only have liability coverage, the other person’s car is covered by the property damage portion of the policy (provided you have sufficient coverage), but your car isn’t covered at all.
Comprehensive coverage can also be referred to as “other-than-collision” coverage. I’ve also seen it called the “acts of God” policy, but you’re never going to see a policy referring to anything as an “act of God”.
The comprehensive policy covers things like theft, fire, and weather related damage. Comprehensive also kicks in if you hit a deer or other animal that causes damage to your car. I’m not sure why an animal collision goes under comprehensive and not collision, but that’s where it goes – I think the logic is that an animal collision is less likely to be your fault than a vehicle collision.
Full Coverage Or Liability Only – When To Make The Switch
Making the decision to switch from full coverage to liability only coverage is a decision only you can reach. However, my rule of thumb is that once your vehicle is worth less than $2,000, as long as it’s paid off, you can drop full coverage and just stick with liability. Above that and you’ll probably want to keep full coverage on your car.
