When shopping for coverage, you'll need to choose between liability-only insurance and full coverage—each serving different needs and budgets.
The right choice depends on your vehicle's value, financial situation, and risk tolerance. This guide will help you understand the key differences between liability and full coverage insurance so you can make an informed decision for your situation.
Key Insights
- Liability-only is cheapest and required in most states, but only covers others’ damages—not your car or medical bills.
- Full coverage adds collision & comprehensive, protecting your car from accidents, theft, and disasters; often required if financed.
- Liability-only fits older/low-value cars or low-mileage drivers; full coverage suits valuable or financed cars and higher risk tolerance.
- Rule of thumb: if full coverage costs over ~10% of your car’s value yearly, liability-only may be the smarter option.
What is Liability-Only Car Insurance?
Liability-only insurance covers damage or injuries you cause to other people and their property in a car accident.
"It typically includes bodily injury liability, which pays for medical expenses, lost wages, and legal fees, and property damage liability, which covers the cost of repairing or replacing someone else's vehicle or property damaged in the accident," said Kevin Kramer, COO at Ignition Dealer Services.
What Liability Insurance Doesn’t Cover
- Damage to your own vehicle
- Your medical expenses or those of your passengers
- Theft, vandalism, or weather damage to your car
Minimum liability requirements vary significantly by state. "Some states require additional coverage like personal injury protection (PIP) or medical payments (MedPay), which covers medical expenses for the driver and their passengers, and uninsured/underinsured motorist coverage, which protects the driver if they're hit by a driver with too little or no insurance," explained Kramer.
State Liability Insurance Minimum Requirements Examples
- California: $30,000 bodily injury per person, $60,000 per accident, $15,000 property damage
- Illinois: $25,000 bodily injury per person, $50,000 per accident, $20,000 property damage, plus uninsured motorist coverage
- New Jersey: $5,000 property damage, $15,000 personal injury protection
- Texas: $30,000 bodily injury per person, $60,000 per accident, $25,000 property damage
When Liability-Only Car Insurance Makes Sense
"When premium cost is a concern, it can be an option under certain circumstances. Examples include drivers of older cars, where the value of the car may be lower than the cost of full coverage, low-mileage drivers who are rarely exposed to accident risk, and drivers without a loan or lease, who aren't required by a bank or lender to carry full coverage," said Kramer.
What is Full Coverage Car Insurance?
Full coverage is a term used to describe a combination of coverages that go beyond liability insurance.
"A full coverage policy typically includes liability coverage, which is required by law in most states, collision coverage, which pays to repair or replace the vehicle after an accident, regardless of fault, and comprehensive coverage, which covers damage from non-collision events like theft, vandalism, fire, flooding or hitting an animal," explained Kramer.
This optional car insurance is broader and usually required by lenders for financed or leased vehicles. It's designed to protect the lender's investment until the car is paid off.
Compared to liability-only insurance, full coverage offers greater protection for your vehicle from both collision and non-collision events, reducing the risk of high out-of-pocket costs for repairs or replacement.
Additional Full Coverage Car Insurance Benefits
- Roadside assistance: Covers emergency services like fuel delivery, flat tire replacement, and towing
- Rental reimbursement: Pays for a rental car while your vehicle is being repaired after a covered claim
- New car replacement: Reimburses you for a brand new car if yours is totaled following a claim
What Full Coverage Car Insurance Doesn't Include
"Despite its name, full coverage does not cover everything; mechanical failures like engine trouble or wear and tear aren't covered, and personal belongings in the car are exempt as well, since these are typically covered by homeowners or renters insurance," said Kramer.
Deductibles still apply, and there's a cap on payouts based on your policy and the car's actual cash value.
Full Coverage Car Insurance Example
"Imagine Kelly, a car owner living in Maryland, was hit by a red-light runner while normally passing through an intersection. The at-fault driver was from Virginia and had insurance, but with extremely limited coverage insufficient to cover Kelly's total losses," said Sean Malloy, managing partner and personal injury attorney at Malloy Law Offices.
Kelly's vehicle was severely damaged, and she suffered injuries. Unfortunately, she had only purchased minimum liability insurance to save on premiums. She was forced to pay for vehicle repairs out of pocket and cover some medical expenses herself.
"Kelly's story could have had a very different outcome with full coverage car insurance. She could have immediately filed a claim under her collision coverage for vehicle repairs without waiting for the other party's settlement," explained Malloy.
Liability vs. Full Coverage: A Cost Comparison
The right auto insurance coverage depends on your financial situation and risk tolerance. Consider these key questions when choosing between liability-only and full coverage:
- What is my budget for car insurance? Analyze your monthly income and expenses to determine what you can comfortably afford. If funds are tight, liability coverage may be your only option.
- Can I afford to repair or replace my car out of pocket? If the answer is no, full coverage is a wise investment. You can skip it only if you have a substantial emergency fund to cover repairs or replacement costs.
- Is my vehicle financed or leased? Lenders typically require full coverage for financed or leased vehicles. If you own your car outright, liability insurance may suffice.
- How much do I drive? Frequent drivers face higher accident risk and benefit more from full coverage. Occasional drivers (retirees, remote workers) may find liability-only adequate.
- How much is my vehicle worth? Liability insurance works for older or low-value cars. Luxury or antique vehicles warrant the extra cost of full coverage.
"A good rule of thumb is, if the annual full coverage premium is more than 10% of the car's value, it may be time to consider switching to liability-only," explained Kramer.
How to Save Money on Car Insurance
Regardless of coverage type, these strategies can help you get lower car insurance rates:
- Shop around: Compare quotes from multiple car insurers, evaluating premiums, coverage levels, and financial strength ratings.
- Bundle policies: Combine auto insurance with homeowners' or renters' insurance for multi-policy discounts.
- Look for discounts: Take advantage of good student, autopay, loyalty, and other available discounts.
- Choose a higher deductible: Higher deductibles reduce premiums but increase out-of-pocket costs when filing claims.
- Drive responsibly: Maintain a clean driving record free of violations, accidents, and DUIs to qualify for lower rates.
Bottom Line: Liability vs. Full Coverage Car Insurance
"Choosing car insurance isn't just about meeting legal requirements—it's about determining how much protection you truly have. Minimum liability only keeps you legally compliant; full coverage delivers real peace of mind, but it's not always worth it," said Malloy.
Since full coverage can cost two to three times more than liability-only coverage, a thorough cost-benefit analysis is essential. Consider your vehicle's value, financial situation, and risk tolerance before deciding. You don't want to overpay for coverage you don't need, or be underinsured when you need protection most.
If you're unsure whether liability or full coverage is right for you, consult an independent insurance agent. They can provide personalized guidance and help you find the best policy for your specific situation.
Frequently Asked Questions
1. What’s the difference between liability and full coverage?
Liability covers damages you cause to others (required by law). Full Coverage includes liability plus protection for your own car (collision + comprehensive). It’s optional but offers more complete protection.
2: Is full coverage worth it?
Yes, if your car is new, financed, or valuable, or if you can’t afford repairs out of pocket. No, if your car is older or low-value, the cost of coverage might exceed the benefit.
3: Can I switch from full coverage to liability?
Yes, if your car is paid off and you’re comfortable covering your losses. It lowers your premium but increases your risk. Always check with your insurer first.
