You’re required by law to have car insurance, but what type and amount of coverage you have is up to you. One of the components of auto coverage you have to weigh is if you want full coverage or just liability insurance. Understanding the difference between these and their purposes can help you determine which route is best for you.
The difference between full coverage and liability-only coverage
Having car insurance helps protect you financially in the event of a car accident or other automotive loss. It’s required for your own good and so anyone you cause vehicular damage to can afford repairs.
The bare minimum auto coverage that most states require is for liability. The editors of insurance company Cover’s online blog provide this definition: “Liability insurance exists to cover the potential cost of damage you may cause to others when driving. This could be the cost of medical care for people injured in an accident or the repair cost of damage to other vehicles.”
Full coverage adds two more types of coverage: collision and comprehensive. Cover’s editorial staff explains that these address damages to your vehicle, which liability doesn’t do. Collision is for when something happens to your vehicle while you’re driving it. Comprehensive is when something happens to your car when you’re not driving it, such as when it’s parked overnight.
Ultimately, the decision between liability and full coverage is if you want any financial protection for your own car as well as others’, or if it’s enough to have financial protection only for bills you cause for other people.
When to pay for full coverage
If you’re unsure whether full coverage would be financially beneficial for you or not, you need to consider the value of your car and your ability to pay for any repairs out of pocket. Mary Keuren of The Simple Dollar explains, “If it would be financially impossible for you to afford another car if your current car is damaged, full coverage insurance is the way to go.”
She offers a handful of situations in which having full coverage would be a wise investment. If you bought a brand-new car, you can protect your purchase with full coverage in case something happens to it. If you drive an expensive luxury or sports car, full coverage will help pay for those expensive repairs to bring the vehicle back to its former glory. If you spend a lot of time in your car and put your car in a lot of potentially damaging environments, like natural disasters, full coverage is more likely to pay off for you. It is also worth noting that glass coverage is only available when you opt for full coverage.
When liability coverage is enough
Obviously, the above-mentioned cases may not apply to you. You might be driving a hand-me-down jalopy or typically leave your second car parked in storage. In such situations, Cover’s editorial team recommends, “Ask yourself if the age, mileage, or wear and tear on your vehicle mean that the payment you would get from your insurer isn’t worth the extra monthly payments for full coverage.”
According to financial expert Clark Howard, if your daily driver has reached 8 years past its model year, it’s probably a better financial decision to drop the collision and comprehensive coverages and “become your own insurance company.” So, if your car is only worth $2,000, why pay $1,000 every year on insurance premiums? Of course, it’s important to verify that your vehicle has indeed lost the majority of its value by checking a trusted valuation guide first, like Kelley Blue Book.
It’s important that you pay for the type and amount of coverage you need for the vehicle you drive. As the age and condition of your vehicle changes over time, the coverage it needs may change, too.
