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Liability vs. Full Coverage: What’s the Difference, Cost, and Which Is Right for You?


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Updated: Nov 28, 2023
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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
Key Takeaways

carInsurance icon

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.

accident2 icon

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.

insurance2 icon

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
Coverage Type
Liability-Only
Full Coverage

Covered Insurance
Options

  • Bodily injury liability
  • Property damage liability
  • Bodily injury liability
  • Property damage liability
  • Collision
  • Comprehensive

Additional Insurance
Options

Available in only some states:

  • Uninsured/underinsured motorist
    coverage
  • Personal injury protection (PIP)
  • Personal injury protection (PIP)
  • Gap insurance
  • Roadside assistance
  • Uninsured/underinsured motorist

Cheapest Annual Cost

$409

$883

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.

Best for People With:

  • 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
    old)
  • High-value cars
  • Not enough savings to absorb the cost of
    an accident

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.

  • injury icon

    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.

  • car icon

    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.

Each state has its own minimum car insurance requirements. Purchasing a policy meeting these minimum limits allows you to drive legally, but there are advantages to paying for increased coverages.

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.

  • carAccident icon

    Liability

    Helps cover expenses in accidents where you are at-fault.

  • rain icon

    Comprehensive

    Protects you from expenses if your car gets damaged from non-collision events. These may include vandalism, fire or even theft.

  • accident2 icon

    Collision

    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.

  • financialPlanning icon

    Personal Injury Protection

    • Coverage for medical expenses for you or your passengers.
  • money icon

    Guaranteed Asset Protection

    • Pays the difference between your car’s value and the outstanding loan in the event of theft or total damage.
  • car2 icon

    Roadside Assistance

    • Covers emergency vehicle services like towing, battery jumpstart and changing of flat tires.
    • Covered emergencies vary per provider.
  • carInsurance icon

    Uninsured/Underinsured Motorist

    • 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

carInsurance
Liability

Annual Cost

$409
accident2
Full Coverage

Annual Cost

$883
Premiums for full coverage policies are on average:$474 more

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.

Company
Annual Premium
Monthly Premium

State Farm

$391

$33

State Farm

$409

$34

GEICO

$424

$35

GEICO

$436

$36

Nationwide

$456

$38

Nationwide

$462

$38

State Farm

$494

$41

Nationwide

$495

$41

State Farm

$499

$42

GEICO

$500

$42

Travelers

$504

$42

Nationwide

$506

$42

Progressive

$512

$43

Progressive

$514

$43

Travelers

$523

$44

State Farm

$523

$44

Travelers

$548

$46

Farmers

$572

$48

Progressive

$579

$48

GEICO

$579

$48

Nationwide

$592

$49

Farmers

$594

$50

GEICO

$602

$50

Allstate

$604

$50

Travelers

$621

$52

State Farm

$629

$52

Allstate

$640

$53

Allstate

$641

$53

Nationwide

$644

$54

Travelers

$644

$54

Progressive

$664

$55

Progressive

$666

$56

Travelers

$679

$57

GEICO

$691

$58

Farmers

$692

$58

Farmers

$731

$61

Allstate

$738

$61

Progressive

$757

$63

Farmers

$769

$64

Allstate

$784

$65

Allstate

$786

$66

State Farm

$819

$68

Nationwide

$856

$71

State Farm

$883

$74

Farmers

$891

$74

GEICO

$923

$77

Nationwide

$930

$78

GEICO

$936

$78

Travelers

$1,015

$85

Travelers

$1,037

$86

Progressive

$1,088

$91

State Farm

$1,099

$92

Progressive

$1,120

$93

GEICO

$1,123

$94

Allstate

$1,124

$94

Allstate

$1,143

$95

Nationwide

$1,146

$96

Farmers

$1,160

$97

Travelers

$1,183

$99

Farmers

$1,192

$99

Allstate

$1,247

$104

Progressive

$1,353

$113

Farmers

$1,437

$120

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.

State
Company
Annual Premium
Monthly Premium

Alabama

Allstate

$825

$69

Alabama

Cincinnati Insurance

$256

$21

Alabama

Nationwide

$709

$59

Alabama

Cincinnati Insurance

$201

$17

Alabama

Cincinnati Insurance

$581

$48

Alabama

Cincinnati Insurance

$175

$15

Alaska

GEICO

$750

$62

Alaska

GEICO

$352

$29

Alaska

State Farm

$699

$58

Alaska

State Farm

$322

$27

Alaska

State Farm

$644

$54

Alaska

State Farm

$300

$25

Arizona

Root Insurance Company

$684

$57

Arizona

Travelers

$359

$30

Arizona

Root Insurance Company

$682

$57

Arizona

Mercury

$305

$25

Arizona

Travelers

$689

$57

Arizona

Mercury

$321

$27

Arkansas

Hanover

$741

$62

Arkansas

Hanover

$260

$22

Arkansas

State Farm

$629

$52

Arkansas

State Farm

$232

$19

Arkansas

Hanover

$551

$46

Arkansas

Hanover

$191

$16

California

GEICO

$1,284

$107

California

CSAA

$428

$36

California

AAA California

$1,001

$83

California

GEICO

$419

$35

California

AAA California

$991

$83

California

GEICO

$411

$34

Colorado

American National P&C

$668

$56

Colorado

American National P&C

$259

$22

Colorado

American National P&C

$541

$45

Colorado

American National P&C

$216

$18

Colorado

American National P&C

$532

$44

Colorado

American National P&C

$248

$21

Connecticut

GEICO

$880

$73

Connecticut

GEICO

$405

$34

Connecticut

GEICO

$693

$58

Connecticut

GEICO

$319

$27

Connecticut

GEICO

$683

$57

Connecticut

GEICO

$326

$27

Delaware

Travelers

$980

$82

Delaware

Travelers

$459

$38

Delaware

State Farm

$881

$73

Delaware

Travelers

$464

$39

Delaware

State Farm

$817

$68

Delaware

Travelers

$444

$37

District of Columbia

GEICO

$878

$73

District of Columbia

GEICO

$474

$40

District of Columbia

GEICO

$662

$55

District of Columbia

GEICO

$372

$31

District of Columbia

Chubb

$372

$31

District of Columbia

GEICO

$715

$60

District of Columbia

Chubb

$345

$29

Florida

State Farm

$1,259

$105

Florida

State Farm

$581

$48

Florida

State Farm

$1,058

$88

Florida

GEICO

$485

$40

Florida

State Farm

$970

$81

Florida

GEICO

$446

$37

Georgia

Allstate

$942

$78

Georgia

Auto-Owners Insurance Co

$441

$37

Georgia

Country Financial

$665

$55

Georgia

Auto-Owners Insurance Co

$311

$26

Georgia

Country Financial

$580

$48

Georgia

Country Financial

$285

$24

Hawaii

GEICO

$565

$47

Hawaii

GEICO

$217

$18

Hawaii

GEICO

$565

$47

Hawaii

GEICO

$217

$18

Hawaii

GEICO

$565

$47

Hawaii

GEICO

$217

$18

Idaho

American National P&C

$383

$32

Idaho

American National P&C

$152

$13

Idaho

American National P&C

$299

$25

Idaho

American National P&C

$127

$11

Idaho

American National P&C

$307

$26

Idaho

State Farm

$145

$12

Illinois

American Family

$753

$63

Illinois

Mercury

$329

$27

Illinois

Country Financial

$663

$55

Illinois

Mercury

$226

$19

Illinois

Country Financial

$610

$51

Illinois

Mercury

$235

$20

Indiana

American Family

$598

$50

Indiana

State Farm

$287

$24

Indiana

American Family

$555

$46

Indiana

Auto-Owners Insurance Co

$228

$19

Indiana

State Farm

$530

$44

Indiana

State Farm

$222

$18

Iowa

State Farm

$639

$53

Iowa

State Farm

$175

$15

Iowa

State Farm

$509

$42

Iowa

State Farm

$144

$12

Iowa

State Farm

$448

$37

Iowa

State Farm

$136

$11

Kansas

Nationwide

$786

$66

Kansas

Nationwide

$275

$23

Kansas

Nationwide

$670

$56

Kansas

Nationwide

$221

$18

Kansas

Nationwide

$596

$50

Kansas

Nationwide

$218

$18

Kentucky

Nationwide

$1,007

$84

Kentucky

Cincinnati Insurance

$330

$28

Kentucky

Nationwide

$790

$66

Kentucky

Cincinnati Insurance

$257

$21

Kentucky

Cincinnati Insurance

$670

$56

Kentucky

Cincinnati Insurance

$228

$19

Louisiana

GEICO

$1,512

$126

Louisiana

GEICO

$535

$45

Louisiana

Louisiana Farm Bureau

$1,048

$87

Louisiana

Louisiana Farm Bureau

$484

$40

Louisiana

State Farm

$1,257

$105

Louisiana

State Farm

$541

$45

Maine

Concord Group

$690

$57

Maine

Countryway Insurance

$266

$22

Maine

Concord Group

$521

$43

Maine

Countryway Insurance

$221

$18

Maine

Concord Group

$498

$41

Maine

Countryway Insurance

$221

$18

Maryland

Progressive

$961

$80

Maryland

Progressive

$572

$48

Maryland

Progressive

$938

$78

Maryland

Kemper

$538

$45

Maryland

Progressive

$857

$71

Maryland

Progressive

$538

$45

Massachusetts

State Farm

$483

$40

Massachusetts

State Farm

$221

$18

Massachusetts

State Farm

$483

$40

Massachusetts

State Farm

$221

$18

Massachusetts

State Farm

$369

$31

Massachusetts

State Farm

$167

$14

Michigan

GEICO

$903

$75

Michigan

Travelers

$111

$9

Michigan

GEICO

$898

$75

Michigan

Travelers

$101

$8

Michigan

Chubb

$798

$67

Michigan

Travelers

$94

$8

Minnesota

American Family

$842

$70

Minnesota

Auto-Owners Insurance Co

$370

$31

Minnesota

State Farm

$797

$66

Minnesota

Westfield

$317

$26

Minnesota

Iowa Farm Bureau

$694

$58

Minnesota

State Farm

$305

$25

Mississippi

Direct General Insurance

$919

$77

Mississippi

Progressive

$304

$25

Mississippi

Direct General Insurance

$723

$60

Mississippi

Direct General Insurance

$275

$23

Mississippi

Direct General Insurance

$639

$53

Mississippi

Progressive

$227

$19

Missouri

American Family

$1,070

$89

Missouri

State Farm

$479

$40

Missouri

Nationwide

$909

$76

Missouri

State Farm

$388

$32

Missouri

Nationwide

$860

$72

Missouri

State Farm

$381

$32

Montana

Progressive

$525

$44

Montana

State Farm

$185

$15

Montana

Progressive

$437

$36

Montana

State Farm

$168

$14

Montana

Progressive

$399

$33

Montana

State Farm

$154

$13

Nebraska

American National P&C

$493

$41

Nebraska

American National P&C

$163

$14

Nebraska

American National P&C

$405

$34

Nebraska

American National P&C

$138

$12

Nebraska

American National P&C

$381

$32

Nebraska

American National P&C

$157

$13

Nevada

CSAA

$1,168

$97

Nevada

CSAA

$565

$47

Nevada

CSAA

$940

$78

Nevada

CSAA

$444

$37

Nevada

CSAA

$840

$70

Nevada

CSAA

$402

$33

New Hampshire

State Farm

$681

$57

New Hampshire

State Farm

$296

$25

New Hampshire

State Farm

$540

$45

New Hampshire

State Farm

$247

$21

New Hampshire

State Farm

$500

$42

New Hampshire

State Farm

$233

$19

New Jersey

Plymouth Rock Assurance

$965

$80

New Jersey

Amica Mutual

$460

$38

New Jersey

Plymouth Rock Assurance

$895

$75

New Jersey

GEICO

$428

$36

New Jersey

NJM

$798

$66

New Jersey

GEICO

$420

$35

New Mexico

State Farm

$854

$71

New Mexico

State Farm

$310

$26

New Mexico

State Farm

$644

$54

New Mexico

State Farm

$254

$21

New Mexico

State Farm

$607

$51

New Mexico

State Farm

$239

$20

New York

Kemper

$990

$82

New York

Kemper

$540

$45

New York

Kemper

$781

$65

New York

Kemper

$464

$39

New York

Kemper

$766

$64

New York

Kemper

$468

$39

North Carolina

Erie

$644

$54

North Carolina

Nationwide

$293

$24

North Carolina

Erie

$630

$52

North Carolina

Nationwide

$242

$20

North Carolina

Nationwide

$514

$43

North Carolina

Nationwide

$230

$19

North Dakota

American Family

$709

$59

North Dakota

Nodak Mutual

$211

$18

North Dakota

American Family

$616

$51

North Dakota

Nodak Mutual

$190

$16

North Dakota

Nodak Mutual

$514

$43

North Dakota

Nodak Mutual

$158

$13

Ohio

American Family

$516

$43

Ohio

Erie

$220

$18

Ohio

Nationwide

$485

$40

Ohio

Erie

$176

$15

Ohio

Nationwide

$448

$37

Ohio

Erie

$170

$14

Oklahoma

State Farm

$818

$68

Oklahoma

State Farm

$258

$22

Oklahoma

State Farm

$662

$55

Oklahoma

State Farm

$215

$18

Oklahoma

State Farm

$579

$48

Oklahoma

State Farm

$200

$17

Oregon

State Farm

$813

$68

Oregon

State Farm

$411

$34

Oregon

State Farm

$706

$59

Oregon

State Farm

$381

$32

Oregon

State Farm

$656

$55

Oregon

State Farm

$360

$30

Pennsylvania

Travelers

$672

$56

Pennsylvania

Travelers

$286

$24

Pennsylvania

Nationwide

$580

$48

Pennsylvania

Erie

$238

$20

Pennsylvania

Nationwide

$508

$42

Pennsylvania

Erie

$242

$20

Rhode Island

State Farm

$862

$72

Rhode Island

Travelers

$376

$31

Rhode Island

State Farm

$700

$58

Rhode Island

State Farm

$344

$29

Rhode Island

State Farm

$712

$59

Rhode Island

State Farm

$356

$30

South Carolina

American National P&C

$548

$46

South Carolina

American National P&C

$285

$24

South Carolina

American National P&C

$463

$39

South Carolina

American National P&C

$251

$21

South Carolina

American National P&C

$482

$40

South Carolina

American National P&C

$283

$24

South Dakota

Allstate

$803

$67

South Dakota

State Farm

$260

$22

South Dakota

Allstate

$746

$62

South Dakota

Farmers Mutual of Nebraska

$207

$17

South Dakota

Nationwide

$702

$58

South Dakota

State Farm

$204

$17

Tennessee

State Farm

$728

$61

Tennessee

State Farm

$256

$21

Tennessee

State Farm

$579

$48

Tennessee

Auto-Owners Insurance Co

$207

$17

Tennessee

State Farm

$516

$43

Tennessee

State Farm

$197

$16

Texas

State Farm

$900

$75

Texas

State Farm

$392

$33

Texas

State Farm

$699

$58

Texas

State Farm

$321

$27

Texas

Texas Farm Bureau

$629

$52

Texas

Texas Farm Bureau

$295

$25

Utah

Nationwide

$896

$75

Utah

GEICO

$490

$41

Utah

Nationwide

$725

$60

Utah

Farmers Union Insurance

$388

$32

Utah

Nationwide

$670

$56

Utah

Farmers Union Insurance

$369

$31

Vermont

State Farm

$611

$51

Vermont

State Farm

$233

$19

Vermont

State Farm

$493

$41

Vermont

State Farm

$198

$17

Vermont

State Farm

$449

$37

Vermont

State Farm

$188

$16

Virginia

Virginia Farm Bureau

$753

$63

Virginia

Virginia Farm Bureau

$300

$25

Virginia

American Family

$601

$50

Virginia

American Family

$243

$20

Virginia

Nationwide

$651

$54

Virginia

Mercury

$251

$21

Washington

PEMCO

$670

$56

Washington

PEMCO

$326

$27

Washington

PEMCO

$534

$44

Washington

PEMCO

$262

$22

Washington

PEMCO

$569

$47

Washington

PEMCO

$284

$24

West Virginia

Erie

$962

$80

West Virginia

Erie

$361

$30

West Virginia

Erie

$784

$65

West Virginia

Erie

$303

$25

West Virginia

Erie

$773

$64

West Virginia

Erie

$300

$25

Wisconsin

GEICO

$641

$53

Wisconsin

GEICO

$273

$23

Wisconsin

GEICO

$556

$46

Wisconsin

Erie

$230

$19

Wisconsin

State Farm

$568

$47

Wisconsin

State Farm

$232

$19

Wyoming

Farmers

$870

$72

Wyoming

GEICO

$201

$17

Wyoming

State Farm

$745

$62

Wyoming

GEICO

$176

$15

Wyoming

State Farm

$646

$54

Wyoming

State Farm

$182

$15

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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:
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. 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:
Explanation

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.

1

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.

2

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.

3

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.

4

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


Mark Fitzpatrick headshot

Mark Fitzpatrick is a senior content director at MoneyGeek with over five years of experience analyzing the insurance market, conducting original research and creating content that can be personalized for every buyer. He has been quoted on insurance topics in several publications, including CNBC, NBC News and Mashable.

Mark earned a master’s degree in Economics and International Relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his economics and insurance knowledge to bring transparency around financial topics and help others feel confident in their money moves.


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