Liability vs. Full Coverage Car Insurance: What’s the Difference, and Which Is Right for You?
Liability and full coverage car insurance are different, but full coverage includes liability. Liability coverage protects you from the other driver’s expenses should you cause an accident, while a full coverage policy also covers your own vehicle’s damages, regardless of whether the damage is from a collision or not.
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Many people purchase full coverage insurance while making car payments but often prefer to give up comprehensive and collision coverage once they’ve completed all their payments. Maintaining a liability-only policy may be more affordable, but several factors can help determine whether it’s the best thing for you. Be sure to consider your vehicle’s value and the difference in cost between liability and full coverage car insurance.
MoneyGeek walks you through the difference between liability and full coverage. It can help you decide which of the two best suits your needs and whether it’s worth paying for additional coverage.
Table of Contents
Liability insurance protects you against damages incurred by the other driver in an accident. It covers costs caused by injuries to the driver and their passengers and damages to their car or other property.
Full coverage car insurance also protects you against the cost of damages to your vehicle if you crash into something or another driver hits you. In addition, it covers non-collision incidents like vandalism and theft.
There are a lot of advantages to purchasing full coverage car insurance since it provides more protection on the road. As your vehicle gets older and depreciates, it may become less cost-effective.
What Is the Difference Between Liability and Full Coverage?
Several factors separate liability and full coverage car insurance. Knowing these helps you decide which fits your needs.
Liability coverage protects you against the cost of damages incurred by the other driver in an accident. It includes medical treatments and repairs to their property. A full coverage policy contains liability insurance and comprehensive and collision coverage, which helps pay for damages to your car.
Because of the increased coverages, full coverage costs more than liability-only. All states have liability coverage as part of their minimum insurance requirements, while a full coverage policy is not required in any state.
Key Differences Between Liability-Only & Full Coverage
- Coverage TypeLiability-OnlyFull Coverage
- Bodily Injury Liability
- Property Damage Liability
- Bodily Injury Liability
- Property Damage Liability
- Personal Injury Protection (PIP)
- Gap Insurance
- Roadside Assistance
- Uninsured/Underinsured Motorist
Average Annual Cost
Mandated by Law?
Yes, in almost every state.
No, but most banks and financing companies
require it until you pay off your car loan/lease.
- Old cars (10+ years old)
- Low-value cars
- Enough savings to absorb a financial
hit in the event of an accident
- Relatively new cars (less than five years
- High-value cars
- Not enough savings to absorb the cost of
What Is Liability Insurance?
You can purchase liability insurance as a separate policy or include it as part of full coverage. If you cause an accident and the other driver sustains injuries or property damage, liability coverage can help you pay for the expenses. However, if you, your passengers or your car sustain any damage, a liability-only policy won’t provide you with coverage.
A liability-only policy contains two types of insurance: bodily injury and property damage.
Bodily Injury Liability
Protects you from costs resulting from injuries sustained by the other driver and their passengers if you caused an accident.
Property Damage Liability
Protects you from expenses if the other driver’s car or personal items are damaged.
All states have car insurance laws requiring car insurance to operate a motor vehicle, and some require you to carry proof of insurance with you when driving. This regulation started in 1927 when Massachusetts became the first state to require drivers to buy liability insurance.
Having increased limits may cost more, but it also provides additional protection when you’re on the road. However, it doesn’t automatically mean you should purchase full coverage car insurance. You can also opt for add-on coverages, such as uninsured/underinsured motorist coverage or personal injury protection insurance.
What Is Full Coverage Insurance?
Full coverage car insurance provides protection for your vehicle and injuries, not just the other driver’s. Comprehensive and collision insurance, both included in a full coverage policy, help you pay for damages from collision and non-collision-related incidents.
Protects you from expenses if your car gets damaged from non-collision events. These may include vandalism, fire or even theft.
Protects from costs caused by damages to your car if you hit an object or if another driver crashes into you.
Just because it’s called full coverage car insurance doesn’t mean it protects you from everything that could happen while you’re on the road. Full coverage car insurance covers the other driver and their car and you and your vehicle. Although it isn’t the norm in all states (or with all insurers), some auto insurance providers consider uninsured/underinsured motorist coverage as part of full coverage car insurance.
Some drivers confuse comprehensive and full coverage insurance because of the terminology, but these are not synonymous. Comprehensive insurance is one of the coverages included in a full coverage policy, along with collision insurance. Typically, you purchase comprehensive and collision coverage together, but this isn’t always the case.
While you may spend more on full coverage in the short term, there are several long-term advantages of carrying this coverage.
You might not feel it right away, but having full coverage car insurance provides more financial security in the future. This policy ensures that your carrier reimburses you for costs associated with damages to your vehicle, which could sometimes come from the most unlikely circumstances beyond your control, such as having a tree branch fall on your car.
It also comes in handy if, in an accident, an uninsured driver hits you. If you only have liability insurance, you’ll have to pay for repairs out of pocket. A full coverage policy with uninsured motorist coverage will help you pay for expenses up until its set limits.
Cost Comparison: How Much Does Full Coverage Cost vs. Liability-Only?
The difference in price between liability and full coverage car insurance can be significant. The cost of liability-only coverage can be as low as $409 in some states. In comparison, the most affordable full coverage policy costs $817 each year on average.
MoneyGeek compared quotes from several car insurance providers and found that the average cost of car insurance between liability-only and full coverage differs by $413, with the former being the more affordable option.
In the short term, liability-only will cost you less, but affordability isn’t always the best basis for choosing which type of auto insurance to get.
Comparing Liability and Full Coverage Auto Insurance Costs
This is 46% more expensive.
Comparing Liability & Full Coverage Costs from Top Providers
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Is Having Liability Insurance Enough?
You usually need to carry full coverage auto insurance if you have a car lease or loan. Most financial institutions require it. Once you’ve finished with your payments, it may be tempting to drop comprehensive and collision insurance to save money, but it still may cost you more in the long run. Most drivers find liability-only insurance with state minimum limits doesn’t provide enough coverage — if you cause an accident, you may pay more out-of-pocket.
That said, there are logical reasons to stop paying for comprehensive and collision insurance. The table below lists some considerations you may want to take into account.
- Choose liability if:Explanation
- Your car is old or low-value.Due to depreciation, it may be more practical to carry liability-only insurance if your car is more than 10 years old. If your vehicle is worth $3,000 and covered for over $10,000, you may be paying too much for insurance.
- You have a lot of mileage on your car.You often pay a lower premium for a car with more mileage. If you have a high-mileage vehicle but are paying for full coverage car insurance, you may be paying too much for coverage.
- You have enough money to replace your car.Check how much it’ll take for you to replace your car. If you’re driving a low-value vehicle, you may be better off buying a new car rather than paying for full coverage insurance each year.
One of the best factors to determine whether or not it’s worth it to keep paying for full coverage car insurance is your vehicle’s age. As with most things, a car is subject to wear and tear. At some point in your car’s lifespan, purchasing a new car becomes more cost-effective than paying for full coverage car insurance year after year.
A car typically begins to depreciate as soon as it leaves the lot. Following that logic, the value of vehicles that are 10 years old or more has considerably depreciated, making the corresponding annual cost of full coverage insurance less worthwhile.
Not all vehicles follow the 10-year rule. Some makes and models age better than others and may retain more value. The 10-year rule still makes for a good rule of thumb, though, when you’re figuring out whether you should continue paying for comprehensive and collision insurance.
There are various factors to consider when deciding what type of insurance to purchase. Your car’s age, its mileage and even your financial standing come into play. Your circumstances determine most variables, so it pays to take a bit of time and effort to evaluate your situation.
Could you survive a financial hit if you got into an accident or a tree smashed your car first thing tomorrow? If your answer is no, it’s probably best to get full coverage.
How to Decide if Liability or Full Coverage Is Right For You
With multiple factors to consider, it can be difficult to decide if full or liability-only coverage is best for your unique needs. MoneyGeek provides a step-by-step guide to help you determine whether you should purchase liability or full coverage car insurance.
Estimate your car's depreciated value.
Taking a look at your car’s depreciated value is a crucial step.
If, for example, you determine your vehicle is worth $1,000, but you pay $400 a year for full coverage car insurance, you’ll be losing money after 2.5 years. It makes the extra amount you pay for comprehensive and collision insurance not worth it. In comparison, if your car is worth $20,000, a $400 annual premium is an excellent deal.
Determine the annual cost of your full coverage car insurance policy.
Next, you’ll have to figure out how much a full coverage policy costs. Make sure that you provide accurate information when you request quotes. It’s always best to compare quotes from multiple providers since carriers often offer varying rates.
Find out how long it takes to pay off your car’s worth in premiums.
If you want to know how long it’ll take to pay off your car’s value in insurance premiums, divide the depreciated value of your vehicle by the policy’s annual premium.
Following our example above, if you have a three-year-old vehicle valued at around $15,000, it’ll take you almost 16 years to pay off your car’s value in premiums if you pay $941 per year for coverage.
Make a decision based on your risk tolerance.
Ultimately, you’ll have to determine whether you’re comfortable buying liability-only or full coverage insurance. Typically, the longer it takes to pay off your car using insurance premiums, the better off you’ll be buying full coverage car insurance.
If, after your computation, you find out it’ll only take you two years to pay off your car’s value in premiums, you may want to consider getting liability-only. The fewer years, the more you’re better off dropping comprehensive and collision insurance. Sometimes, it’s better to self-insure — use the money you would use for insurance to replace your car instead.
FAQs About Liability vs. Full Coverage
Although most drivers know how crucial it is to carry a car insurance policy, there can still be confusion surrounding the differences between liability and full coverage. Learning the answers to some frequently asked questions can help you make an informed decision for your policy.
About the Author
- Insurance Information Institute. "Background on: Compulsory Auto/Uninsured Motorists." Accessed November 19, 2021.