Full Coverage vs. Liability Only - The Car Insurance Dilemma

At the opposite ends of the car insurance spectrum are full coverage and liability only. In reality, there are many steps in between these polar opposites and there are even multiple levels of full coverage and liability only. However, car insurance can best be understood by first fully comprehending the differences between these two extremes.

Liability Only Car Insurance

Car insurance is regulated at the state level, and therefore, each state has its own guidelines concerning the minimum car insurance coverage's that are required. One thing that is for certain, though, is that all states have laws regarding the minimum amount of liability coverage you must have in order to legally drive your vehicle. But what is liability coverage? It is insurance that covers damage you cause to other people (outside of your car) and their property.

State minimums are expressed in three parts. For example, Colorado 's legal minimums are 25/50/15. The first number refers to the maximum amount your insurance company will pay for injuries sustained by a single individual, per accident; the second number refers to the maximum amount your insurer will pay for all injuries in a single accident; and the third number is the maximum amount your insurer will pay for property damage, per accident. So for Colorado, this translates into $25,000 of bodily injury coverage per victim; $50,000 of bodily injury coverage per accident; and $15,000 of property damage coverage per accident.

Keep in mind that these are the state minimums - it may be wise to carry coverage in excess of them. Keeping with the Colorado example, if you were in an accident that caused $100,000 in bodily injury damages to another motorist, your insurance would only cover the first $25,000. For the other $75,000 the injured motorist could come after you! This may or may not apply in so-called "no-fault" states, of which there are 12.

Full Coverage Car Insurance

What is known as "full coverage" is actually two forms of coverage on top of liability - comprehensive coverage and collision coverage. A motorist can elect to have comprehensive coverage without collision, but not collision without comprehensive. A car insurance policy with liability and comprehensive coverage would be something in between the legal minimum and "full coverage."

Comprehensive coverage is sometimes referred to as "other-than-collision" coverage, or OTC. Obviously, it covers damages to your vehicle that arise from something other than a collision. Examples include theft, fire, weather damage, etc., but the insurance companies confuse the issue by including accidents with animals as part of comprehensive coverage, rather than collision. The logic behind this is that comprehensive is designed to cover things that are less likely to be your fault.

Collision coverage is an optional add-on to comprehensive - although it isn't optional if you still owe money on your car! Finance companies require borrowers to carry full car insurance coverage on their vehicles.

Getting Something for Your Money - That's the Name of the Game

Too many people look at insurance as an annoying expense. In reality, it is an investment - a financial product - and it should be viewed as such. Whether you want liability only, full coverage, or something in between, you need to make sure you are not paying more than you have to for the coverage you need. The best way to ensure you're getting a good value is by comparison shopping online. In many cases, customers are able to save money while simultaneously increasing their coverage.