Liability vs. Full Coverage: Which Auto Insurance Do You Need?

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When it comes to auto insurance, there are many things to consider. One question we hear often is: Can I get liability only or do I need full coverage? Whether you’re getting an auto policy for the first time, shopping around to lower your rate, or simply looking for another way to save, we’ve got you covered!

In this article, we’ll go over the difference between liability and full coverage, including:

What Is Liability Insurance?

In the world of insurance, liability coverage protects you financially when you’re legally responsible for causing damages, injury or harm to other people and/or their property. When it comes to car insurance, liability coverage offers protection in two key areas:

  • Bodily injury liability: covers the costs of medical expenses for anyone you’ve injured while driving
  • Property damage liability: covers the costs to repair and/or replace property you’ve damaged while driving

Liability coverage can also be used for costs related to things like legal fees if you’re sued after causing a car accident.

It’s important to know that liability coverage does not protect you — the driver — though. This means your liability coverage will not pay medical expenses for injuries you or your passengers sustained after causing an accident. And you can’t repair or replace your property using liability coverage when you’re at fault for an accident either.

Each state has its own requirements for the minimum amount of liability coverage your auto policy must include. No matter where you live, you can see your state minimums here. But keep in mind: State minimums might not be enough coverage to protect you if you have any assets.

Want to know how much car insurance you should have? Check out money expert Clark Howard’s tip for calculating how much car insurance you need.

What Is Full Coverage Insurance?

Full coverage car insurance means — in addition to liability coverage — you have a policy that also offers you some level of protection in the event of an accident and regardless of who’s at fault. There are many different coverages you can get to amp up how much protection you have. But typically, when people talk about full coverage, they mean a policy that includes at least two additional types of coverage along with liability:

  • Collision coverage: covers the costs to repair and/or replace your vehicle after a car accident, including when you’re at fault
  • Comprehensive coverage: covers the costs to repair and/or replace your vehicle after damages caused by non-collision events

Again, these types of coverages are important because they protect you after an accident or non-collision event that ends in damages or loss to your property. Non-collision events can include things like someone stealing or vandalizing your car, a tree falling on it, or other acts of nature causing damage. Comprehensive coverage will also protect you against damages caused during an accident with an animal (like if you hit a deer).

Other common types of coverages that can be part of a full coverage policy include:

  • Uninsured/underinsured motorist protection
  • Gap insurance

When driving a car that’s financed, your lender can have their own definition of what’s required for your “full coverage” policy with the loan. Be sure to check out our articles with more info — including Clark’s thoughts — on uninsured/underinsured motorist protection and gap insurance.

When Should You Drop Full Coverage?

There are many factors to consider before dropping coverages other than liability from your auto insurance. For one, if you’re leasing or still paying on a car you financed, then you’ll likely be required to have full coverage. Another thing to consider is how much financial protection you want or might need against the unexpected. And of course, keep in mind how much your car is worth.

“If you own a vehicle that’s still worth a significant amount of money, you absolutely want comprehensive coverage,” says Clark.

A general rule in the auto world is this: If the cost of comprehensive and collision exceeds 10% of your vehicle’s value, it’s time to dump them and have liability coverage only. When you’re ready to calculate your car’s value, you can use sites like Edmunds, Kelley Blue Book (KBB) or NADA. Then plug that value into the formula below.

When To Drop Comprehensive & Collision Coverage
Coverage Cost ≥ 10% of Car’s Value = Drop Comprehensive and Collision

“At some point, it becomes wiser to just become your own insurance company.”

But before you rush and drop these coverages, there’s one exception to keep in mind. If you know you can’t afford to cover the cost of repairing or replacing your car, forget the math and keep your coverage.

Final Thoughts

A key difference between liability and full coverage insurance comes down to who your insurance will compensate after an accident. With liability, insurance will pay others when you’re at fault for an accident. Full coverage ensures that you also can receive financial compensation to repair or replace your car.

If you’re leasing your car, it’s still being paid on, or it’s quite valuable, then you probably need full coverage. But if you own your car free and clear and the cost of comprehensive and collision is more than 10% of your vehicle’s value, it might be worth considering liability only.