How Auto Insurance Liability Coverage Differs from Full Coverage

Auto insurance liability coverage differs from full-coverage in several ways. That is because liability is only one level, whereas full-coverage includes liability along with other types to make up an auto insurance policy with ultimate protection.

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It may be difficult to believe that many people still do not understand the major differences between a simple liability auto insurance policy and full coverage, but they don’t. Unfortunately, this is a top reason for the vast number of underinsured motorists in America. Many people believe they only need to meet their state minimum requirement and stop there.

Limited Options and Discounts

One of the first things you might notice if you choose a liability-only auto insurance policy is the limited number of options and discounts you receive. Most car insurance companies provide myriad discounts to gain your business.

The most standard of these includes multi-vehicle and safe driver, which reduce your rates if you insure more than one vehicle and have a good driving record, respectively.

However, if you only select basic liability coverage, you may not qualify for these incentives or other insurance discounts.

Sure, they may advertise these benefits on their website and on television commercials, but once you read the fine print, terms or conditions, you may have a revelation. They can exclude you based on your coverage selections.

This could be for a number of reasons, but most likely it is due to the amount of money you pay for your policy. Liability is not only the least amount of coverage acceptable by law, but it is also the cheapest level. This means your car insurance company will not receive premium dollar for their services.

Consider the two states with the lowest cost of auto insurance: North Dakota and South Dakota. According to the Rocky Mountain Insurance Information Association, insured residents in these states pay less than $50 per month for coverage. North Dakota residents pay an average of $510 annually for liability while South Dakota citizens pay $521 annually, according to the association.

Compare this to information found on the North Dakota Insurance Department and South Dakota Department of Labor and Regulation websites. Both of these states require a minimum of 25/50/25 for a liability policy.

This means a person who pays just more than $500 annually can receive a maximum payout of $25,000 or $50,000, depending on the circumstances surrounding the claim. That is a huge loss for the auto insurance carrier, which cannot begin to recoup the massive amount it pays out.

Therefore, they may not encourage liability-only policyholders by offering them reduced rates or special offers. Rather, they will keep these promotions for their customers who have full-coverage policies, those who generally pay substantially more each year.

You Rely on Personal Finances or Other Payment Methods

If you have major damage inflicted on your vehicle, you cannot make a damage claim and expect any compensation with just liability coverage. If the fault is not your own, hopefully, the other driver has enough car insurance to pay you for the loss. If they do not have insurance, or escape the scene by fleeing, you are in a tough spot.

If they do remain at the scene, you might get some money toward any pain and suffering if you receive bodily harm. However, the other driver may only have a limited policy because you could live in a state that has much lower requirements for property damage or medical expense payments.

Florida is a good example of such a state. This state has a minimum of 10/20/10. Ohio also has very low requirements, with a minimum of 12.5/25/7.5.

Although both of these states pay between $20,000 and $25,000 for injuries, this amount is for the accident as a whole. For individuals, it is only $10,000 and $12,500. It is very easy to exceed this amount if more than one person has injuries. Property damage can quickly surpass $7,500.

In fact, the National Safety Council gives an estimated cost for non-fatal injuries and property damage in their 2010 report. They show the average total as $70,200 — including lost wages, administrative and medical expenses for vehicle injuries — and $8,900 for property damage. These prices increase along with the consumer price index.

This is how limiting liability policies can be. Although it may be the maximum coverage you can find, you cannot be certain that all your needs will receive proper attention. This could mean you will need to dig into your personal finances or seek other methods of payment to ensure that you do not fall into the gaping abyss of debt. There are more reliable options.

Full coverage includes uninsured/underinsured motorist coverage so you will not experience this type of expense. If you have an accident, your claim will yield the proper results and pay according to the amount you choose. Since the average limit is about $50,000, you will have the extra security when you need it most.

Recovering from a Loss is Difficult with Liability

If you take a loss because someone steals your car, you had better hope that you have more than liability coverage or that the police find the vehicle undamaged. If not, you are simply out of luck.

Your liability policy does not cover theft.

Only with a full-coverage policy, which includes comprehensive coverage, will you feel safeguarded against this kind of personal violation. It is extremely important to remember this when you make your decision.

Comprehensive is a type of coverage that allows you to contact your car insurance provider and submit a theft claim. This does not mean that you should not follow all of the necessary steps of retrieval. In fact, the auto insurance company actually requires a copy of a police report before they begin the process. However, it will provide you with peace of mind, knowing that you will receive payment.

It is impossible to tell when a theft will happen. You could have a false sense of security just driving around your neighborhood, as statistics may show that these types of crimes do not occur frequently in your area. Still, you are in danger, especially during a down economy.

People are becoming very unpredictable and may take chances they never thought of previously. You need to be just as prepared for an unforeseeable future. If you are the victim of a car thief, you need to have assurance that you will receive fair value for the loss so you can purchase a replacement vehicle.

Safe Driving Doesn’t Guarantee Anything

Just because you are a safe driver does not guarantee that you will never collide with something other than another driver. You could slide on ice or hydroplane in high water. This means you cannot hope that the other driver’s insurance will pay for your damage, as another person is not at fault. Accidents often happen due to poor weather, obstacles and animals.

If you happen to hit an object that someone owns, like his or her fence or a parked car, your liability property coverage will take care of that expense.

On the other hand, you could run off the road and hit a tree. Liability coverage does not cover these types of accidents. Only collision coverage, which is a part of full-coverage protection, helps in this instance.

When you need repairs completed to get your car back on the road, you will need to rely on your collision selections to submit a damage claim. You just need to pay the deductible. The body shop you choose will make the necessary repairs and deal directly with your insurance company to confirm full payment.

Liability-Only Policies May Not Be an Option

While many people may still want to purchase a liability-only policy, some may not have this option. New car buyers usually need full-coverage auto insurance. They do not make this choice themselves; rather, their credit union, financial institution or bank requires this. If this describes your situation, there is no way around the stipulation.

If you decide to finance a vehicle, part of the approval process will likely include proof of full coverage before they settle the loan.

You may think that you can drop your coverage down to liability after you receive the loan approval, but think twice about this step.

Your financial institution receives frequent updates from your car insurance provider. They can also make their own inquiries to confirm your level of coverage. If they discover that you downgraded your coverage, they may send you a notice advising that you have a certain number of days to make corrections.

If you ignore their demands, they have the right to surcharge you, or increase your loan payments. This is how many financial institutions that offer car loans protect their investment. Remember: they bought the car. You do not own the vehicle until you make the last payment.

When Liability Only is Best

There are times when choosing a liability-only policy is a smart move. One such example is if you have an older vehicle, which you may not drive often. In this case, it probably does not make much sense to spend hundreds more every year.

You can most likely get by with the state minimum because you still want to obey the laws, but the odds of having a car stolen or damaged are low. In addition, older cars have less actual value than new cars do and you will not receive much money from your car insurance company if you file a claim.

Many parents put liability on their teenage driver’s vehicles to save extra money because they know they will likely have a few minor accidents while they gain experience. This is a great way to protect a new driver without spending a bundle on car insurance.

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