Liability vs. Full Coverage: What’s the Difference, Cost, and Which Is Right for You?
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By, Content Director
Understanding the potential drawbacks and benefits of maintaining liability vs. full coverage car insurance can help you determine your best option. While premiums for liability-only policies tend to be cheaper, coverage is limited. Full coverage insurance typically includes comprehensive and collision coverage, providing protection for a wider range of situations, including damages to the policyholder’s vehicle.
MoneyGeek analyzed various policy options based on circumstances, needs and preferences.
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. However, as your vehicle gets older and depreciates, it may become less cost-effective.
What Is the Difference Between Liability and Full Coverage?
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. Simply put, it only pays for damages to the other driver and not your own. A full coverage policy contains liability insurance and comprehensive and collision coverage, which help pay for damages to your car, not limited to collisions, like theft or vandalism.
Because of the increased coverage, 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 and Full Coverage
Available in only some states:
Cheapest Annual Cost
Mandated by Law?
Yes, in almost every state.
No, but most banks and financing companies
Best for People With:
What Is Liability Insurance?
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. You can purchase liability insurance as a separate policy or include it as part of full coverage.
A liability-only policy contains two types of insurance: bodily injury and property damage.
Bodily Injury Liability
Most states legally require drivers to carry car insurance to operate a motor vehicle. Minimum car insurance requirements depend on your location. New Hampshire and Virginia are the only exceptions, as they don’t require drivers to have liability insurance.
Twelve states require drivers to carry personal injury protection (PIP) coverage. In some states, it’s an optional add-on. However, PIP isn’t available in all states. You may also purchase uninsured/underinsured motorist coverage in addition to liability coverage for additional protection.
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 financial protection for your vehicle and injuries, not just the other drivers. Comprehensive and collision insurance, both included in a full coverage policy, help you pay for damages from collision and non-collision-related incidents.
Helps cover expenses in accidents where you are at-fault.
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.
Although full coverage typically includes liability, comprehensive and collision insurance, you can add other coverage options. Insurance providers may offer add-ons that will add to your insurance cost.
Additional Insurance Options
Common add-on insurance options include PIP, Guaranteed Asset Protection (GAP), roadside assistance and uninsured/underinsured motorist coverages.
Personal Injury Protection
- Coverage for medical expenses for you or your passengers.
Guaranteed Asset Protection
- Pays the difference between your car’s value and the outstanding loan in the event of theft or total damage.
- Covers emergency vehicle services like towing, battery jumpstart and changing of flat tires.
- Covered emergencies vary per provider.
- Pays for damages you and your passengers incur after an accident involving an uninsured or underinsured motorist.
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. For instance, State Farm offers the most affordable option for both liability and full coverage insurance based on average rates. A liability-only insurance from the company costs an average of $409 per year. In contrast, the average cost of a full coverage policy from the same carrier is $883 annually.
Comparing Liability and Full Coverage Auto Insurance Costs
This is 116% more expensive.
MoneyGeek compared quotes from several car insurance providers and found that State Farm has the lowest rate for both types of policies. However, the costs between its liability-only and full coverage differ by $474 annually. That means a full coverage policy may include other insurance options, but it’s typically more expensive. Other providers may offer discounts that could lower the cost of full coverage.
Cheapest Liability-Only and Full Coverage Costs by State
The cost of auto insurance may vary greatly depending on where you live. Car insurance providers tend to calculate policy rates differently between states. The most affordable option at a national level isn’t necessarily the cheapest choice in your state.
Select your age range and preferred coverage below to see which company offers the cheapest minimum and full coverage policy in your area.
Each carrier has its own list of factors impacting car insurance costs, so it’s best to check with the company or an agent.
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See how the Average Annual Auto Insurance Rates vary with the options chosen.
Should I Get Full Coverage or Liability-Only?
You should also consider the type of car you drive, your location and your budget when deciding between liability vs full coverage car insurance. Liability insurance may be the right option if you have a low-value car, have a lot of mileage or have enough money to replace your car. However, upgrading to full coverage may be a good idea if you have a high-value vehicle, are on a car lease or loan, regularly drive or live in an area with severe weather conditions or a high car theft rate.
Is Having Liability Insurance Enough?
A liability insurance policy may be enough for you if your car is old or has a low value. It’s also the better option for drivers with high-mileage vehicles. Additionally, full coverage tends to cost more. So, if a higher premium doesn’t fit your budget, it may be better to choose liability coverage. Keep in mind that you may end up owing more out-of-pocket after an incident.
Choose Liability If:
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. And a car that has aged 10 years will have 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.
It would also help to review your financial situation to determine whether to purchase liability-only or full coverage. If you don’t think you can survive a financial hit after an accident, it may be better to get full coverage insurance.
Why Is Full Coverage Better?
The best full coverage car insurance policies may cost more than liability insurance but provide wider protection. It makes the most sense if you have a high-value car, if you are financing your vehicle through a lease or loan, if you use it regularly or live in an area with severe weather conditions or a high car theft rate.
Full Coverage If:
You own a new or luxury vehicle
If you think you can’t afford to repair or replace your vehicle in the event of theft or total damage, full coverage is a great idea.
Your car is financed
If you’re paying a car loan or lease, you may need full coverage. Lenders typically require borrowers to carry full coverage insurance to protect their investment.
You regularly use your car
The risk of car accidents increases the more you use the vehicle. Full coverage is better for you if you drive regularly, especially in heavy traffic or in an area with many uninsured or underinsured motorists.
You live in an area of severe weather conditions or high car theft rates
Full coverage ensures financial protection against non-road accidents, such as extreme weather conditions, vandalism and theft.
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 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
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.
Frequently Asked Questions
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 Mark Fitzpatrick
- Insurance Information Institute. "Background on: Compulsory Auto/Uninsured Motorists." Accessed November 19, 2021.