Should You Always Have Full Coverage On Your Automobile

Are you looking for ways to reduce your monthly auto insurance payment? If so, then you may have heard that you can get a much lower monthly payment by replacing your full coverage with liability auto insurance. While there are some instantaneous financial benefits in switching from full coverage to a cheaper policy, there are some things that you need to know about full coverage vs. liability coverage first...

Should You Always Have Full Coverage On Your AutomobileBuying auto insurance can become intimidating, especially for those of us who like to spend money wisely. You want to be protected, but you don’t want to end up spending more money than you actually need to. Understanding the difference between full coverage and liability coverage auto insurance is the first step to making the most informed choice.

What it means to have Full Coverage auto insurance

Full coverage auto insurance is typically what your auto insurance agent or company will suggest that you purchase. Full coverage auto insurance refers to auto insurance that covers both the collision and comprehensive for damage to the property of the insured, as well as bodily damage and property damage to the other driver.

This type of coverage is considered "full" because it covers the most bases. The collision coverage in your full coverage policy will pay for damages done to your vehicle in the event of a traffic accident or collision with an object. If the damage is extensive enough, full coverage will pay to replace the vehicle. The comprehensive coverage will pay for damages caused by things such as vandalism, theft, weather phenomenon and some natural disasters.

What it means to have Liability Coverage auto insurance

Liability auto insurance coverage protects the insured from paying out of pocket for damages done to the other driver’s car (or in some cases other object that was hit by the insured’s car) and for bodily injury to the other driver. With liability coverage, the insured can select the amount of coverage to buy; the higher the coverage amount the more the auto insurance premium will be. For example, if you choose a policy that covers 100,000 dollars worth of damage done to the other driver’s property, then it will be more expensive than 50,000 worth of coverage.

So do you need full coverage insurance? It all depends on the specifics of your situation. If you are currently financing a car, then you really don’t have a say when it comes to dropping your full coverage. You’ll be required by 99.9% of lenders to keep full coverage auto insurance on the vehicle until your final payment is made and the car is yours.

However, if you do own your vehicle, you do have the option to switch from full coverage auto insurance to a cheaper policy with only liability coverage. But does that mean that you should do it?

Maybe. Let’s say that you have an older car that is paid for and the car’s Kelly Blue Book value is 9,500 dollars and you get into a traffic accident and the car is totaled. If you have full coverage you’ll get that money back from your insurer to replace the car. Without the full coverage, you’d have to come up with your own 9,500 dollars to replace your car with a comparable vehicle. Was your full coverage insurance worth it? You bet it was.

Now what if your car is only valued at say around 1,500 dollars and you have that much in the bank to replace it with a comparable car if yours is totaled? You can ask your insurance agent to give you a rate quote to see how much per month you’ll save. If the savings is significant enough and you have enough money in the bank to replace the car that you are now driving in the event of an accident, then you can safely drop the coverage and save a bit more per month.