If you want to lower your insurance costs, you may be considering replacing your auto insurance policy with liability-only coverage. But before you make any adjustments, make sure you know the ins and outs of liability versus comprehensive car insurance.
Liability insurance does not cover as many possible incidents as comprehensive car insurance. And while full-coverage car insurance can be expensive, you also don’t want to have such little coverage that your financial health is at risk if you ever have a car accident. State-required insurance minimums are often not enough for full coverage.
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Third Party Liability vs Comprehensive Automobile Insurance
Owning a vehicle is more expensive than it was a year or two ago. According to AAA, the average cost of owning a new vehicle — including gas, maintenance, insurance and finance charges — has risen to $9,666 per year.
If anything ever happens to that expensive vehicle (or the people in it), you’ll need car insurance to cover the costs. Car insurance companies offer both liability and comprehensive insurance, but they cover very different things.
How does auto liability insurance work?
In most states, drivers are required to have some level of liability insurance protection. Minimum coverage amounts vary by state, but these policies cover damage or injury you may cause to others in an accident.
Liability has two parts:
Bodily injuries: This pays for the other party’s medical treatment and expenses if you injure them in a car accident.
Property damage: This pays to repair or replace property damaged in an accident you caused, such as a fence, car or building. (This does not include damage to your own vehicle.)
Keep in mind that state minimums for liability insurance are relatively low. If property damage or personal injury resulting from an accident exceeds state minimum limits, you are responsible for all additional costs. In general, you should get the best liability coverage you can reasonably afford.
How does comprehensive car insurance work?
Although people often talk about buying comprehensive insurance, “full coverage” is not a standardized term. Full coverage insurance generally means a policy that combines liability protection with comprehensive and collision coverage, but the specifics vary by insurance company.
Responsibility: Similar to liability-only policies, liability protection covers damage or injury to another person in an accident.
Collision insurance: Collision coverage pays for damage to your car caused by an accident. It covers repairs or, if the car is declared a total loss, it pays you the actual value of your car.
Back to back insurance : This insurance reimburses damage to your car caused by factors other than collisions, such as storms, vandalism or theft.
Since comprehensive insurance combines three types of coverage, it is more expensive than liability-only insurance policies. The average cost of a policy that includes liability, collision and comprehensive coverage was $1,203.65 per year in 2019, according to a report from the NAIC. That’s almost double the cost of a liability-only insurance policy.
Unlike liability coverage, collision and property and casualty policies typically have deductibles, which can range from $100 to $2,500. If you are involved in an accident or your car is damaged, you must pay the deductible before your insurance will start paying for damages or repairs.
Collision and Full Coverage are not required by law. However, your lender may require you to have comprehensive insurance if you have an auto loan or lease. If you are on the road often, you may also consider adding additional coverage for uninsured/underinsured motorists or roadside assistance.
5 important differences between liability insurance and comprehensive car insurance
If you’re still hesitating between liability insurance and comprehensive car insurance, keep these five key differences in mind:
Liability protection only covers damage and injury you cause to another person. It does not pay for repairs to your own vehicle or your own medical expenses. In contrast, comprehensive insurance provides liability protection as well as coverage for repairs to your vehicle and medical treatment if you are injured.
2. Coverage limits
With liability insurance, you can choose the amount of coverage you want as long as you meet your state’s minimum requirements. For example, New Jersey requires drivers to have limits of at least $15,000 Personal Injury Protection (PIP) per accident as well as $5,000 property damage coverage.
However, many experts recommend purchasing coverage amounts much higher than those required by the state, such as $100,000 to $300,000, to ensure you are covered in the event of a serious injury or lawsuit.
For full-coverage policies, policy limits vary depending on the type of plan you choose, but limits are generally based on the actual cash value of your car.
Comprehensive insurance is significantly more expensive than liability only insurance policies. Comprehensive insurance policies that include liability, all-perils, and collision coverage cost almost double the cost of liability-only policies.
Exact premium prices vary by person. Factors that affect car insurance rates include the year, make and model of the vehicle, your age, typical mileage, and location.
Deductibles only apply to policies that cover damage to your own property. Full coverage policies with full coverage and collision will have deductibles, but liability only policies will not. Deductibles can range from $100 to $2,500.
Automobile liability insurance is required in almost all states. There are only two states in which liability coverage is not required by law:
New Hampshire: In New Hampshire, drivers do not need auto insurance, but they must be able to show they have sufficient funds to meet the state’s motor vehicle liability requirements.
Virginia: Virginia drivers can waive their auto insurance if they pay a $500 fee to the state. But you are taking a huge financial risk if you are ever involved in an accident.
State laws do not require drivers to have collision or full coverage, but your lender may require you to have a full coverage policy if you lease a car or take out an auto loan.
Which auto insurance to choose?
If you’re trying to save money on car insurance and deciding whether liability insurance or comprehensive coverage makes sense, ask yourself these questions:
What is the value of your vehicle? If your vehicle would cost a lot of money to repair or replace, a liability insurance policy is unlikely to provide sufficient coverage. You will likely need comprehensive coverage which includes collision and full coverage.
Is your car leased or financed? If you took out a loan to buy your car or are leasing it from a dealership, the lender may require you to carry comprehensive insurance.
Do you have substantial savings? Drivers who have a lot of money saved may be able to skip full coverage policies. If you are financially well off, you could insure yourself and pay for all your repairs or medical expenses yourself in the event of an accident, but it would still be very expensive.
What would you do if your car was unusable? Liability coverage only reimburses damage and injury suffered by another person. If your car is damaged and you cannot afford to repair or replace it yourself, you risk losing access to your vehicle altogether.
How much liability insurance do I need?
Minimum liability insurance limits vary by state. However, you should generally get coverage above the minimum required by the state. If you cause injury or damage beyond your policy limits, you will be required to fully cover the remaining cost out of pocket.
When deciding how much liability insurance to buy, buy as much as you can afford. In general, experts recommend a minimum of $100,000 bodily injury protection per person and $300,000 per accident.
If you have significant assets that could be at risk in a lawsuit, such as investment accounts or real estate, you may need even more extensive coverage or a liability insurance policy.
When is full coverage not worth it?
Full coverage policies that include liability, collision and comprehensive coverage may not be worth the extra cost in the following scenarios:
What is liability insurance?
Liability insurance is the type of auto insurance required in most states. It is made up of two parts: civil liability for bodily injury and civil liability for material damage. Liability insurance pays for damages and injuries to another person or property that you may cause in an accident. It does not cover your own injury or damage.
At the end of the line
If you have a newer car or don’t have a lot of savings, comprehensive insurance is probably a good idea. If you have an older car and can afford to pay for repairs or replacement out of pocket, you may be able to get by with liability insurance only.
Most people should get more than the minimum amount of liability insurance because the cost of a car accident could easily exceed these low limits. And if you want extra peace of mind, comprehensive insurance might be worth the extra cost to you.
Whichever type of insurance you choose, be sure to shop around and compare prices from different insurers. If you’re looking for how to change car insurance companies, the process is quite simple. Start by checking out our selection of the best car insurance companies.
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