Auto insurance- we all know we need it. In fact, it’s required by law, but determining how much to purchase is a murkier decision.
Auto insurance provides the protection you (and the drivers you encounter) need to safely hit the streets, but at what cost?
While you want to ensure you’re amply protected, no one wants to overpay for coverage they don’t need. The goal is to find the sweet spot where you are paying the minimum for maximum protection.
In addition to shopping for lower auto insurance rates, you can save money on auto insurance by changing your deductible and coverage amounts, or by dropping full coverage in lieu of liability-only coverage.
Let this article be your guide as you make the call between full coverage and liability only, and get the coverage you need.
Table of Contents
Defining Full Coverage and Liability Only
The first key to picking the best coverage for your needs is knowing what each type of policy encompasses.
From there, you can do the math and assess your needs to see which is the best fit for you and your vehicle. First things first, let’s define liability and full coverage auto insurance.
What Is Full Coverage Car Insurance?
Full coverage auto insurance protects you if your vehicle is damaged or totaled, covering both collision and comprehensive coverage.
Here are a few specifics covered by most comprehensive plans:
- Animal-induced damage
- Falling objects
- Fire
- Theft
- Vandalism
- Weather damage
And many full coverage plans roll in medical bills and life insurance. Research each policy’s benefits to choose the best option.
What Is Liability Auto Insurance?
Liability insurance is far more limited in scope. Essentially, it covers damage to other people or property when you cause it.
In other words, your coverage pays for their damages but not yours, meaning you will be responsible for paying for your own vehicle’s damage.
Liability coverage boils down to two categories:
- Bodily injury: If someone is injured in an accident you cause, your policy kicks in to help cover their medical expenses.
- Property damage: When a person’s property, usually their car, is damaged at your hands, your coverage takes care of repairing or replacing it.
What Coverage Are You Required to Have?
In most states, liability insurance is the basic level of insurance legally required for drivers. But in some instances, you might be required to purchase full coverage insurance.
When? If there is an outstanding loan on your vehicle, your lender will probably require you to maintain full coverage to protect their interests.
After all, what incentive is there to pay off a totaled vehicle? But you can usually drop full coverage insurance if you have a clear title on the vehicle.
How to Decide If You Should Drop Full Coverage
If your vehicle is all paid up and 100% yours, you may be wondering whether or not you should keep your full coverage policy.
Just because you can drop full coverage doesn’t mean it is necessarily a good idea. The key is striking a balance between risk tolerance and affordability.
On the one hand, you could have more coverage than you realistically need, which means you’re wasting money. On the other hand, if you purchase insufficient insurance, you could be out of luck following an accident.
Here’s a scenario: Let’s say you buy a brand new $30,000 car with cash. Could you afford to replace it on your own if you’re at fault in an accident and have only liability insurance? Maybe.
But is it worth saving a couple of hundred dollars a year on insurance to take the risk? Probably not.
At its core, auto insurance is the transfer of risk. These are just a few of the questions you need to ask as you make the decision.
Do the Math
When it comes to determining your level of auto insurance, it’s all about the numbers. In order to decide between full coverage and liability insurance, you need to assess the following factors:
- Age: While age shouldn’t be the sole determinate, especially if your car is in pristine condition or the mileage is low, it’s definitely a factor worth considering. If your car is nearing its 10th birthday, it has likely depreciated and may not be worth the cost of full coverage. Your antique roadster is an obvious exception.
- Mileage: Along those lines, your vehicle’s mileage plays into its value. If your adventurous treks, carpools, and commuting have left you with over 100,000 miles of memories, your car’s value has dropped in response.
- Wear: All those years of memories usually come with some wear and tear. If your car’s decline is really notable, that will factor into its overall worth, too.
- Loan: Do you own your vehicle? If you’ve paid off your auto loan, you may want to consider downgrading your coverage, in accordance with the other factors on this list.
- Value: Overall, you need to take a look at the factors above to determine the value of your car. Is it worth the cost of coverage to repair or replace it in the event of an accident? The less expensive your vehicle, the less your need for full coverage is.
- Replacement Cost: Now take those numbers and compare them to your deductible costs. If you wrecked with liability coverage only tomorrow, could you pull the replacement value out of your pocket?
- Policy Cost: How much are your policy’s premiums and deductible? If they exceed your means, you could consider switching policies. Or, if you’re well within your means and the coverage is stellar, you may want to hold onto that full coverage policy.
- Coverage: Here is the ultimate question when it comes to deciding on auto insurance. Which policy will provide the best coverage for your needs?
- Emergency fund: How does your emergency fund look? If it’s non-existent or looking thin, you should probably keep your full coverage policy while working to build it up.
Pro Tip: Use the 10% rule of thumb
If the annual cost of your full coverage insurance is more than 10% of the replacement value you would receive from your insurance company, then it may be a good idea to drop full coverage.
For example, let’s say your car is worth $4,000, and you have a $1000 deductible. After paying your deductible, the most you would get from your insurance company would be $3,000.
If your insurance premiums for full coverage are more than $300 a year, then it may be a good idea to drop the full coverage and go with liability only.
You can save a fair amount of money on your premiums each month to put toward an emergency fund to cover any damages or repairs which you may need for your vehicle, or toward a new car fund.
Do Your Research
When deciding between full coverage and liability-only insurance, you need to read the details of your policy carefully. While your unique situation will require you to research more factors, there are three key considerations within a liability policy.
Insurers set limits on how much your policy covers, and once you max out that amount, you’re responsible for paying the rest of the damages.
Policy caps are broken down into the following three categories:
- Bodily injuries per accident: Bodily injury coverage varies from policy to policy, but it usually caps off at around $500,000.
- Bodily injuries per person: The per-person amount of bodily injury coverage maxes out around $250,000.
- Property damage per person: You can typically get up to $100,000 towards property damage repair with a liability plan.
Don’t Drop Full Coverage Just Because You Can
Some people will drop full coverage to limited coverage as soon as they pay off the vehicle.
Typically, they will base this decision on their driving track record and assume nothing major will happen that they can’t compensate for out of their own pockets.
Accidents are by definition, unpredictable. Anything can happen to anyone at any time. My advice is to get the best coverage you can afford at the fairest rates.
Get Quotes on Auto Insurance
Don’t make your decision in the dark! Running the numbers on your vehicle’s age, mileage, and overall value are just the first steps. Within minutes, you can get free quotes on the best auto insurance rates available to you, whatever type of policy you choose.
» MORE: Compare Car Insurance Rates
Bottom Line
If you’re on the fence about dropping full coverage because of cost, make sure to check out all your options.
Every company uses different criteria to determine rates, and you may be able to find full coverage at a less expensive rate from another carrier.
You should also review your current policy and drop unnecessary options.
Saving money and keeping your coverage could be as simple as increasing your deductibles.
Here are some of the best auto insurance providers in your area:
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Ronna Wilson says
I have a 2011 Kia 4dr SDN 2.4L optima 48602 miles full coverage 1,000 deducable on it do you think it’s worth it had a accident total out but I can’t get a rential
Betty Fly says
I have a 2012 Camry, that has only 22,123 miles. Do you think it’s a good idea to switch from full coverage to liability. I have another car that I use, daily, therefore I only drive this car once a week.
Thanks
Joe says
I have a 05 Chrysler Town and country with full coverage, will it be wise to drop coverage to liability only. I pay 471.30 every 6mos in two monthly installments when due. So what would be your best choice for me for coverage, please help?
David Harper says
insurance is, for the most part, a lose-lose for most people. The reason the insurance companies want you to pay for full coverage is simple; PROFIT. And lots of it. If you haven’t had an accident in twenty years(like most older adults) you should drop full coverage. The only thing you need is liability. Insurance is fundamentally a scam. I’ve had homeowners insurance for fifty years. guess what? I’ve NEVER FILED A CLAIM under it. What does this tell you?
Ryan Guina says
David, I believe we have a fundamentally different view of what insurance is and why one should have a policy. At its basic level, insurance is about shifting risk.
If you can afford to take the risk, buy less coverage. But if you can’t afford the risk, but enough coverage that you will be covered. As an example, let’s say someone has a $25,000 car. If they can afford to replace that car outright if it is in an accident, then they may decide to only buy the minimum required insurance policy in their state. But if they can’t, they should consider having full coverage with a deductible they can afford to pay if there is an accident.
Again, insurance is about shifting risk. You buy insurance to cover expenses you can’t afford to pay out of pocket without damaging your budget or lifestyle. If that means basic insurance, then great. But for some people, that means full coverage. This applies to all forms of insurance, auto, home, health, life, etc.
Gary says
I have a 2006 Lexus IS 250 SD AWD 200,001 miles located in the suburbs in Maryland outside of Washington DC. Full coverage for the car a year is $1200 with zero deductible to pay. The Kelly blue book trade in value is $2618. Is the full coverage worth it for my car?
Ryan Guina says
Gary, you most likely don’t need full coverage on a car that only costs roughly two times your annual premiums. I would look at saving some cash in case you need to replace the car in the near future. Then I would likely drop full coverage in lieu of a less expensive insurance policy.
Paola says
I have two vehicles on my auto policy that’s bundled with my home owners. I’m trying to figure out if it’s worth reducing my coverage on my 2008 galant to liability alone since per KBB the trade in value is $1400. The 6 month renewal premium for the galant is $502.43 for full coverage ($500 deductible) but if we reduced it to liability alone the premium would go down $198 for the 6month premium. What would you do?
Alex Santos says
I’m really considering dropping my coverages on my 2002 Intrepid which has about a $1,300 Blue Book. My deductible is currently $1,000 which to me is pointless cutting a check for a thousand if I’m going to get back $300 maximum. And I’m trying to keep my payments as low as possible but it’s scary knowing I won’t have anything. I do have a $200,000 liability on it which is to me the most important thing but I can’t necessarily afford another car if I get in an accident. I don’t really know what to ask but what is your opinion on this?
Rich says
If it were me, I would cancel collision & comprehensive if I didn’t live in an area where the risk was high of anything larger than a dog running in front of me. If you are insured in an expensive place, the money you save can buy another inexpensive car to get to work until you can save more for a better one. My guess is you don’t care much how that $1300 car’s paint or body looks so no big deal about hail damage or paint peeling. Once the car’s KBB value is worth $300, you can scrap it and get $300.
Ruth says
One thing to take into consideration is your geographic area. For example, in Michigan, you have a 1 in 85 chance of hitting a deer. In West Virginia, you have a 1 in 41 chance. In Hawaii, your chances of hitting a deer are 1 in 18,955.
I live in Michigan, so it makes sense to always maintain comprehensive coverage, regardless of the value of the vehicle. We’ve had 4 deer crashes in the last 8 years including just one just a few weeks ago. The deer totaled out our van on this one.
So having the comprehensive coverage has certainly been worthwhile.
Also, we live in Michigan which is a no-fault state. That means that it doesn’t matter who’s at fault, the other driver’s insurance won’t cover your vehicle. Other than limited recourse of recovering your deductible from the at fault party, you’re pretty much out of luck, if someone else runs into you.
Michaela says
Hello,
I am 21 living in a town in Massachusetts. I just got my new premium for the year of $2,865. According to KBB, my car is worth about $5,600. I was considering dropping full coverage, but people are making me nervous, since I’d be the one to hit someone the week after I did it. I will have paid for the car 2 years from now with insurance. What do you think I should do? I’m having a hard time making a decision…if I were to shop around other companies, do you think it would be a significant difference? ($500 or more…)
Also, what about raising deductible from $500 to $1000? I always have more than that in my savings, but people say there are other risks to this?
Precious says
Hello!
Question: Aunt has fully coverage on her car that is 14 years old. She was not aware that her insurance company will only cover her car under liability, yet they fail to communate this to her in other words she has been losing money. A couple of months ago she was in a hail storm are had hail damge. Her car blue but value is only 1,500. He damges are over 4,000. Should the insurance company cut her a check for $4,000 or total out her car?
Ryan Guina says
IF the car is only worth $1,500, then the insurance company would likely total it out. However, each policy is different, so your Aunt should contact the company or read through her policy for specific information.
Jim says
Paying more than $300 per year insurance premium, is that in the middle of nowhere? I pay $500 for 6 months of liability only in a metro area with 1.2 million people. I’ve called multiple insurance companies and agents. And the best they can do is usually $20 less than what I’m paying now. My cars only worth $5000. I wish I could make my premium that low.
Ryan says
Jim, the $300 figure was for illustration purposes only. $400-$600 is probably more realistic. For example, we pay about $800 per year for full coverage on two cars, which are worth about $30,000, combined. We live in a suburban area, and we don’t drive many miles. Rates vary wildly from state to state, and even within regions within a state. They can also be affected by other factors, such as driving record, vehicle model, safety features on the vehicle, number of miles you drive, crime in the area, multi-policy discounts (more than one car or other insurance product with the same insurance company), etc. All things considered, insurance in metro areas is often higher than in rural or suburban areas.
Jim says
That’s very true. In my case I need to look for other areas to trim my budget.
Rich says
Don’t forget the 2 other big ones… age & credit score.
The College Investor says
If you are looking to save money, you should really call other insurers. The market for auto insurance is so fierce right now that you can probably cut your tate by at least 30% just by switching carriers.