Americans spend around 2.44% of their household’s income on car insurance on average. That amounts to approximately $139.50 per month or just under $1,700 annually. Those buying a used vehicle may wonder whether or not having “full coverage” insurance is worth it. Do you actually need full coverage for an older model? The answer is “it depends.”
Full Coverage Insurance Defined
There’s no industry standard for what constitutes full coverage insurance. This financial protection covers damages to the driver’s vehicle as well as passengers and other automobiles.
Although the definition varies, full coverage usually includes liability, collision, and comprehensive coverage. Liability insurance pays for damages in the event you are at fault in an accident. Comprehensive insurance covers damages that occur when your vehicle is not moving. Collision protects you against accidents that happen while your car is in motion, such as hitting another vehicle or even a fixed object.
What Is Liability Insurance?
Drivers without full coverage are those who carry only liability insurance. Liability coverage protects you in the event you become legally responsible for property damage or injuries. For example, it can help pay the medical expenses of another person who was injured during an accident. In case of property damage, liability insurance can offset some of the cost of repairs, too.
In most states, liability insurance provides the minimum amount of coverage under the law. Although it allows you to operate legally, it may not cover all of your expenses if your vehicle is completely totaled.
Types of Liability Insurance
Liability insurance has two parts: property damage and bodily injury. The property damage portion pays for damage to another person’s car or personal property should you be at fault in an accident. Bodily injury covers injuries to others involved in an accident. This includes the other driver, passengers, or even pedestrians.
To be fully compliant, you must have both property damage and bodily injury coverage. State minimum coverages vary, but are typically very low and may not provide you with adequate coverage in the event of an accident.
You could need liability insurance even if you do not own a car. For example, if you regularly drive someone else’s vehicle, you might want a non-owner insurance policy. This type of coverage would protect you in the event you were at fault in an accident while driving an automobile other than your own.
Benefits of Having Only Liability Insurance
One of the biggest advantages of liability insurance is the cost savings. The United States Automobile Association (USAA) reports that it’s nothing in comparison to how much protection you get in exchange. The cost savings is probably the biggest reason most drivers opt for liability only rather than full coverage.
Liability insurance will also ensure you are compliant with state and local laws. In some areas, the penalty for not carrying at least the minimum amount of coverage is very severe. Along with monetary fines, you could face the loss of your driver’s license and could have to pay for any damages or injuries out of your own pocket.
Benefits of Full Coverage Insurance
Full coverage insurance provides you with absolute peace of mind after an accident. You’ll only be responsible for the deductible amount, provided damages do not exceed your policy limits. In addition, you will never have to worry about meeting your state’s minimum insurance requirements because you have already gone above and beyond what’s mandated.
Having full coverage ensures greater financial stability in the event your car becomes totaled. In that case, your policy would pay you the value of your vehicle. If you have only liability insurance, you won’t be able to recover those damages.
Full coverage insurance is almost always required when financing or leasing an automobile. So unless you are paying in cash, you may have no choice but to purchase comprehensive, collision, and liability coverage.
Do You Need Full Coverage for an Older Vehicle?
If you want maximum protection, full coverage insurance is the way to go. Even so, there are times when having full coverage may not make sense financially. For example, vehicles with very high mileage may not need full coverage. Vehicles with lots of miles depreciate very quickly, in which case you may not realize a solid return on your investment.
Another time when you may not need full coverage is when the value of your automobile is less than the cost of an annual, full-coverage policy. If you drive a very old model, it’s a good idea to compare the Kelley Blue Book value against the policy in order to make a determination.
Your risk factor increases with the number of miles you drive. Consequently, if you drive only a few miles each week, you have a much lower risk factor and may, therefore, be just fine with only liability coverage.
When to Keep Full Coverage Insurance
Your vehicle may not necessarily have a low Blue Book value just because it is older. Some automobiles hold their value better than others, particularly if they are very well maintained. If you have an older model that’s held its value, you might want to continue paying for full coverage. This is especially true if it’s garage kept or has very low miles for its age.
Your driving and spending habits can play a role in your decision, as well. For example, if you rely heavily on your car for transportation but cannot afford to purchase another vehicle outright, you could need the added protection that full coverage would bring.
Classic and rare cars as well as those with custom features may be worth far more than other vehicles the same age. As a result, you may want to consider full coverage if you own a custom, antique, or collector’s model.
Protecting Your Personal Net Worth
USAA recommends having enough liability to protect your net worth. To calculate your net worth, add your assets and then subtract the amount of your liabilities. Assets include things such as real estate, cash on hand, and retirement savings. Liabilities are other debts like credit cards, bank loans, and student loans.
Your risk tolerance and budget will play a role also. If you struggle to pay for insurance, having only liability coverage is better than not having a policy at all. However, if you have teen drivers or regularly operate in risky conditions, you might be better off keeping full coverage insurance instead.
Choosing Between Liability and Full Coverage
The idea that you no longer need full coverage just because your vehicle is a certain age is definitely a myth. Several factors come into play, including your car’s value, financial circumstances, and risk tolerance. Consider all of these things together and then review your policy at least annually to ensure it still meets your driving needs. If you still want full coverage, look at ways to save such as good driver or multi-car discounts.
