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Full Coverage Car Insurance vs. Liability Only

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance match-ups: “Full coverage car insurance vs. liability only.”

We get a lot of questions about the difference between full coverage and liability-only insurance policies.

It’s not surprising, given the endless number of insurance options available to us as consumers.

The question may be more about what’s included with full coverage than what the difference between the two really is.

First, let’s tackle the simplified answer of what’s the difference, then we’ll tackle when you might want (or need) one over the other.

What’s the Difference?

Liability-only car insurance does not provide coverage for YOU personally or your property.

This means you are only covered against bodily injury and property damage you cause to OTHERS resulting from your negligence while operating your motor vehicle (could be a car, motorcycle, boat, plane or ATV).

If you cause an accident that damages your vehicle, you’d be out of luck when it comes to filing an insurance claim. If your car is totaled, you’d have to buy another car or a bus pass if you can’t afford a new car.

Full coverage auto insurance, on the other hand, means you have physical damage coverage for your own vehicle. Take the same accident above for example.

Your liability coverage would pay for the bodily injury and property damage you cause to the person you hit and your physical damage coverage would pay for your own car’s damage (minus the auto insurance deductible) – even though the damage was caused by you.

Physical damage is further broken down into collision coverage and comprehensive coverage.

Read more about the difference between collision and comprehensive coverage.

*You’d be out of luck with regard to your own bodily injury if you didn’t purchase med pay or PIP coverage.

But neither med pay nor PIP may be necessary if you have health insurance that will cover you.

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Which Do I Need?

The answer depends on a few things. Your lending institution will require full coverage on your auto insurance policy if you took out a loan or are leasing your ride.

The lender or leaseholder is the loss payee on your car, which means if there is a financial loss, they get the money owed to them before you see a dime.

[Is insurance included when you lease a car?]

It’s a good idea to look into GAP coverage if your auto loan or lease is relatively new.

GAP coverage will pay the difference between what you owe and your car’s actual cash value in this instance.

Remember, you lose a good deal of value when you drive off the lot, but your loan balance doesn’t shrink that fast.

There’s also the option of new car replacement coverage (compare the costs of both with your insurer or agent).

You may also want to carry full coverage if your car is paid off. Perhaps you paid cash for your car, or it’s still quite valuable even after the loan is gone.

Insurance is a good idea when you have any asset (even if it’s a depreciating asset) to protect. Insurance is cheaper than buying a new $20,000 car any day of the week if your ride is totaled.

But Full Coverage Is Too Expensive

Get insurance quotes online and/or visit a local independent insurance agent to shop your car insurance rate.

Full coverage may be too expensive with your current insurance company, but may not be as expensive as you think.

You may be one of the people who should switch insurance companies to save money.

Read more: Average cost of car insurance.

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