Figuring out what type of car insurance you need can be challenging, especially when you start comparing the different coverage options. Understanding the differences between liability and full coverage can help you determine what will provide the best coverage for your ride. It’s also important to note what level of coverage your state requires for drivers.
Car Insurance Options
Auto insurance companies often offer various options to customers, allowing them to customize their insurance coverage. Some of the main coverage options offered by these companies include:
- Liability coverage
- Comprehensive coverage
- Collision coverage
- Uninsured/underinsured motorist bodily injury coverage
- Personal injury protection (PIP)
- Gap coverage
Certain companies also offer add-on services, such as coverage when driving for a rideshare company or doing deliveries with a personal vehicle.
State-Mandated Insurance Requirements
Nearly every state in the U.S. mandates minimum insurance requirements for drivers. These requirements, or the amount of coverage needed to drive legally in the state, help to protect drivers in the event of an accident. Since the required coverage amounts vary by state, it’s important to review your state’s requirements before choosing a policy. If you fail to maintain the required level of coverage, you could face a stiff penalty.
The two states that don’t have minimum insurance requirements are New Hampshire and Virginia. In New Hampshire, a driver must prove that they can pay for damages incurred in a car accident. The state can require insurance if a driver has a significant violation, such as a major accident or DUI. Virginia permits residents to pay an uninsured motorist fee instead of obtaining insurance coverage.
Around half of the states have laws requiring drivers to include uninsured/underinsured motorist insurance on their policies. Several states require personal injury protection (PIP) coverage, while all but three states require bodily injury liability insurance.
What is Liability Insurance?
To put it simply, liability insurance covers any damage you cause to others. This might include damage caused to someone else’s vehicle or injuries sustained to another driver or passenger in an accident. However, if you get injured or incur damage to your own vehicle, a liability policy wouldn’t cover the associated costs. Since the person deemed to be at fault in an accident is legally liable for paying for the damages they caused, your liability insurance policy would cover those damages for others if the accident is your fault.
The two main sub-categories of liability insurance are bodily injury liability and property damage liability. As the names suggest, bodily injury liability pays for medical bills related to injuries caused by an accident, while property damage liability pays to repair the damage to other vehicles or property. A liability policy will cover these costs up to a certain limit, and the policy limits typically show two numbers: The maximum paid per person injured in an accident and the maximum paid per accident.
On most policies, the maximum per-accident amount is double the maximum per-person amount. For example, a liability policy might have a bodily injury coverage limit of $10,000 per person injured and $20,000 per accident. This means that the policy would pay out a maximum of $10,000 for a single individual’s medical bills, but the total amount paid could not exceed $20,000 for a single incident. If the medical costs exceeded that amount, the policyholder would have to cover the additional costs out of their pocket.
What is Full Coverage?
Full coverage refers to a car insurance policy that includes liability coverage and collision and comprehensive coverage. As mentioned, liability coverage pays for the damages caused to another person’s vehicle or property and any injuries incurred. Collision insurance covers the policyholder’s vehicle, regardless of who is at fault. If you have a full-coverage policy, your collision insurance will pay for repairs to your car if you collided with another object or vehicle. Most insurance companies don’t offer collision coverage separately and instead will bundle it with comprehensive coverage.
Comprehensive insurance covers your vehicle if damage occurs that isn’t caused by a collision. Examples include natural disasters, vandalism, falling objects, animals, weather conditions, and theft. This type of coverage only applies to the covered vehicles on the policy and wouldn’t cover any damages caused to other vehicles or property.
Benefits and Drawbacks of Liability Insurance
The main benefit of choosing only a liability policy is a lower cost. By securing liability coverage, you can meet your state’s requirement for auto insurance while sticking to a strict budget. The premiums for full coverage are certainly higher than what applies to a liability policy.
However, the drawback of this type of coverage is that you may not have as much financial protection as you need. An accident can cause significant and costly damage to one or more vehicles, as well as injuries that require expensive medical treatment. If you’re at fault, the other parties involved in the accident could come after your financial assets after your insurance policy has paid the maximum benefit. Protecting yourself financially might come at a higher premium cost.
Since liability coverage only covers other vehicles, you could also be responsible for paying for repairs to your vehicle after a crash. If you don’t have the money to pay for the repairs, you might be stuck without a car until you can get it fixed.
Benefits and Drawbacks of Full Coverage Insurance
One of the benefits of full coverage is protection for yourself and your vehicle. If you get in a crash, your liability coverage will pay for the other person’s car and injuries, while your collision coverage would pay for your car and injuries. You don’t have to worry about coming up with thousands of dollars to pay for repairs.
Even the safest and most cautious drivers can benefit from full coverage insurance because issues can happen that have nothing to do with driving habits. A major storm could flood your vehicle, or a branch could fall on the hood, rendering it unable to be driven. With comprehensive insurance on your full-coverage policy, these issues would likely be covered, so you wouldn’t have to worry about coming up with the money to repair or replace a damaged car.
As you determine which type of insurance coverage to include on your policy, think about all of the potential situations in which you could find yourself. Planning ahead can help you reduce your financial risk and protect yourself against costly damage.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.