It’s a good idea to fully understand the coverage on your car insurance policy, despite how complicated it may seem.
This certainly includes knowing what your “liability-only car insurance coverage” does for you, considering the fact that it is mandatory in nearly every state in the union.
Put simply, you should not operate a car without at least this minimum coverage. If you get caught driving without car insurance, your insurance premiums will shoot up, you’ll have to pay some fines, and you’ll be stuck with an SR22!
What is Liability Car Insurance?
Your liability car insurance coverage does absolutely nothing to pay your own medical bills or fix your own vehicle if you are the person who causes the accident.
That’s right, other people are protected, NOT you. Hence the word “liability.”
In other words, you are a liability to other drivers and pedestrians when you operate a giant hunk of metal on public roadways, even if you’re an awesome driver.
As a result, the law requires that you purchase liability car insurance in case you cause any harm to others or their possessions.
While this may sound like a “bummer,” you’d be pretty upset if another driver hit you and didn’t have this basic coverage in place.
If you happen to cause an accident and hurt a person or damage their car, you will be covered up to the liability limits of your policy.
It’s a very good idea to understand what these liability limits mean, and how much liability coverage you should purchase. Otherwise, you could be in for a rude awakening.
What’s Not Covered by Liability-Only Insurance?
Liability car insurance coverage is only one piece of the insurance pie. Now that you know what it does for you, let’s look at what it doesn’t do.This is sometimes the best way to understand car insurance coverage and limit confusion.
Liability car insurance does not cover any of the following:
Physical Damage: Any damage to YOUR car, whether a collision or comprehensive cause of loss, would not be covered. Your only shot at getting repairs paid for are if someone else hits you and they have insurance.
Medical Payments and Personal Injury Protection Coverage: You have no amount of medical coverage for yourself. Med Pay and PIP offer certain no-fault medical benefits. Without either of the coverage types, you are on the hook for your medical bills.
Uninsured Motorist and Underinsured Motorist Coverage: You are not covered if an uninsured or underinsured (or hit-and-run) driver hits you and you opted for “true” liability-only coverage. Without these coverage types; you would be responsible for suing the party that insured you for reimbursement of your medical bills and repairs to your vehicle, or simply paying for the damages yourself.
TIP: We say “true” liability only coverage because, technically, uninsured motorist coverage is a liability coverage. Don’t let this confuse you. Just be sure you know that your insurer will not pay your accident bills if an uninsured driver hits you and you DO NOT have uninsured motorist coverage.
In summary, not a whole lot is covered by liability car insurance. That’s why it’s so cheap.
When to Opt for Liability-Only Car Insurance
There are a few things you should consider prior to making the decision to drop or not even purchase physical damage coverage.
1. You will likely have to keep physical damage coverage on your auto insurance policy if you have an outstanding loan on the vehicle…regardless of the vehicle’s overall value, which drives the meat of the decision. That said, you may begin to consider removing this coverage as early as when you first pay off your car, depending on its overall value.
2. As alluded to in item “1,” your vehicle’s value is the main concern in the decision process. You need to look at what you are paying for coverage and decide if it’s worth it.
For example, if you car is worth $2,000 and you are paying $500 per year for comprehensive and collision coverage, you may want to cancel the physical damage portion of your policy. You must decide if you think it’s a good idea to pay 25% of your car’s entire value to cover it. But, there’s a catch!
3. Your personal financial circumstances may dictate your decision. If you simply do not have enough money to purchase a new car in the event you total your current car, it may make sense to purchase the coverage. At least that way you may get a slightly larger chunk of cash to plunk down on a new car.
It is recommended you try to maintain at least uninsured motorist coverage and physical damage on your vehicle (and PIP or Med Pay if you don’t have health insurance). Only choose to remove or not purchase this coverage as a last resort.