What is the difference between full coverage and liability insurance

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Shopping for car insurance isn’t as straightforward as it could be. If it’s your first time through the process, there’s a lot to figure out to make sure you’re getting the best deal.

However many times you have bought insurance, when it comes to getting the right policy, the more you know, the better.

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So how much car insurance do you need? One of the first choices to make is deciding between full coverage vs. liability insurance.

Taking a closer look at both, you will see that the best option really depends on your circumstances.

What is liability insurance?

Liability insurance exists to cover the potential cost of damage you may cause to others when driving. This could be the cost of medical care for people injured in an accident or the repair cost of damage to other vehicles.

In the majority of states having some form of liability coverage is the law. The minimum amount of coverage required will vary between states.

There are three key numbers to look out for with liability insurance: coverage for injuries per person, total injury coverage per accident and coverage of property damage per accident.

For example, in a state like Ohio, the minimum coverage requirements are $25,000 per person injured with a maximum of $50,000 for people injured in an accident and $25,000 property damage coverage. You will sometimes encounter the coverage level written in the format 25/50/25.

Despite the name, don’t go thinking that if you have full coverage, you are insured for any eventuality. Generally, full coverage will cover the cost of damage to your vehicle.

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Full coverage comprises two additional types of cover: Collision and Comprehensive insurance. Collision insurance is generally for damage from situations when you are driving. This means things like a collision with another car, driving off the road, or hitting an object.

Comprehensive insurance covers damage to the vehicle outside of driving situations, so for example, weather damage, fire or theft.

The difference between comprehensive and collision is the difference between the damage caused a tree falling on your car (comprehensive), and the damage caused if you drove into a tree (collision).

Because full coverage protects you against a wider set of risks, it will cost more. According to the Insurance Information Institute, the average expenditure for liability cover was $538.73. Average expenditure for collision cover was $322.61 and $148.04 for comprehensive cover.

While comprehensive or collision may be optional in your state, you could still be obliged to take out a policy if you are leasing a vehicle or are paying off a loan used to buy the car.

Liability vs. full coverage

The difference between liability and full coverage is straightforward. Liability insures against the damage you could cause other people or their property while on the road. Full coverage applies to damage to your vehicle.

Liability cover is a legal requirement in almost every state.

Do I need full coverage?

Is full coverage worth it? That depends. Probably the biggest factor to consider is the age of your vehicle.

Cars begin to lose their value almost right away.  Edmunds data suggests a new car loses around 10 percent of its value the moment you leave the lot. Over five years your vehicle will depreciate by 15 percent-25 percent every year.

This drop in value means that the amount you first paid for your car will likely be more than what the insurance company will pay out should it get severely damaged.

Deciding whether full coverage makes sense is just a question of math. Ask yourself if the age, mileage, or wear and tear on your vehicle mean that the payment you would get from your insurer isn’t worth the extra monthly payments for full coverage.

Generally, if a vehicle is getting close to ten years old, you might be better saving the money you would spend on full coverage to put towards being able to repair or replace the car yourself.

What isn’t covered by full coverage?

Even if you have full coverage, there might be situations where you are not insured. For example, your own medical bills would not be covered by full coverage. Likewise, if you are hit by a motorist who’s driving without insurance, or not enough liability cover, then uninsured and under-insured motorist coverage would take care of this.

If you want the peace of mind of knowing that you’ll have a vehicle should yours go in for repairs, then you should look for a policy with rental reimbursement coverage. This will help with the cost of a rental car while your car is out of action.

How much liability insurance coverage do I need?

If full coverage doesn’t make sense, it is still a good idea to determine how much liability insurance to buy.

A state’s legal requirement is the minimum, rather than the recommended level. If you cause an accident and the costs exceed the minimum, there is a risk that the payment will be on you.

So if you have the minimum level of coverage for California (15/30/5) and cause a serious collision, that $30,000 total injury coverage per accident may not go very far.

The best solution is to work out how much coverage you can afford and basing your decision on that.