Is liability car insurance only really cheaper?
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UPDATED: Mar 13, 2020
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When saving money on car insurance, the first thing many people do is make changes to a policy. You can reduce the cost of your premiums by dropping coverage, raising deductibles and lowering the limits on your policy. One of the most drastic changes you can make to your policy is to drop collision coverage and pay only for liability. This will save you substantially on your policy, but it may not be the best decision for your needs.
What does liability insurance cover?
Liability coverage is required by the state. In order to register a vehicle, you need to prove that you are able and willing to pay for damage that you may be responsible for causing; for most people, this means a liability insurance policy. When you purchase the policy from your car insurance company, you agree to a limit on your policy; limits can be as low as $5,000 and as high as $1,000,000.
Whenever you’re at fault for a car accident, your car insurance company agrees to pay for damage you cause up to the amount of your insurance limit. Any damage over the limits of your liability coverage will need to be paid by you out of pocket, which is why it’s important to maintain a sufficient level of coverage. Most states have a required minimum that you must carry.
If you choose to carry only liability insurance on your policy, damages that you cause to another party’s vehicle will be paid by your insurance. In order to pay for damage to your own vehicle, you need to carry collision coverage. Unlike liability coverage, which is paid in full by the car insurance company, collision coverage comes with a deductible. You agree to pay this portion o the repair out of pocket whenever your vehicle goes into the shop, and your insurance will pay the rest.
Collision coverage is purchased separately and will add cost to the policy premium. The lower your collision deductible, the more your policy will cost. You can save money on your premiums by increasing your deductible. If you decide that you do not need full coverage on your car, you can also choose to drop the coverage entirely.
When might I want to drop collision coverage?
If your vehicle is more than ten years old, has heavy mileage or has heavily depreciated in value, you may no longer require collision coverage. In some situations, nearly any kind of damage will cause the vehicle to be a total loss. If the value of your vehicle is only a few thousand dollars, paying the extra money on your premiums to keep it fully insured may be unwise. You would be better off saving that money and putting it toward car maintenance and purchasing a new vehicle when the time comes.
Additionally, if you don’t drive that vehicle very often you may want to only keep liability coverage on it. If you feel you have a very low chance of getting into an accident with a car, you can take the risk and remove collision coverage from the policy. Bear in mind however that your vehicle can sustain damage even while parked, and liability-only policies will not cover that damage.
When should you buy collision coverage?
If you are making payments on your vehicle, you need to carry full coverage auto insurance. Until your car is paid off, the vehicle is technically owned by the lien holder and collision coverage protects the lien holder’s interests. Once the vehicle is paid off you can choose to drop coverage; until that point, they determine what you need to carry on the vehicle.
You should also consider leaving the collision coverage on your policy if your vehicle is new or has a high value. If the vehicle costs more to replace than it would to repair, you should maintain collision coverage on it. While your premiums will be higher, they won’t cost as much as needing to buy a new car if yours is destroyed in an accident.
For some people, dropping collision coverage and carrying only liability insurance is a smart way to reduce premiums and save money. For others, full coverage is a necessity. If you still need full coverage on your vehicle, you can save money in other ways such as installing anti-theft devices into your car and taking advantage of safe driving discounts. Contact your insurance company to determine what discounts you may qualify for and how you can begin saving money on your policy without altering your coverage.