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Car Insurance 101: Do I Need Liability Insurance or Full Coverage?

How do you like the number six million? Winning six million dollars sounds good and we can dream of what a six million dollar house looks like. You won’t like the number as much when you hear it’s the average number of car accidents in the U.S. each year.

If you’ve been in an accident before, you know how stressful it can be dealing with the aftermath. Besides making sure everyone is okay and assessing the damage, there are police reports and claims with insurance companies to be handled.

Are you properly covered? It’s important you know the difference between liability insurance and full coverage insurance before you get a call from a repair shop saying you hundreds or thousands of dollars.

We’ll walk you through what each kind of coverage means so you can decide which is best for you. Keep reading!

Liability Insurance

Liability coverage is required in nearly all 50 states and covers the other driver and that person’s vehicle when you are at fault for an accident.

Liability insurance has two components: bodily injury and property damage coverage.

Bodily injury will take care of expenses if a person or several people are injured in the vehicle you hit. Usually, states have a minimum amount for how much coverage you need to cover each person injured. Bodily injury can also cover legal expenses if you are sued after the crash. It will take care of loss of income or funeral expenses for the person hurt or killed in a crash you caused.

Property damage insurance will cover repairs to the other person’s car or other structures you might hit. This includes if you hit a building or someone’s house. States many times also require a minimum amount of coverage for property damage.

Liability insurance does not cover you, your car, or anyone else in your car in an accident that you cause.

Again, if you’re at fault for the accident, and you only have liability insurance, you are on the hook to pay for repairs to your car, your own injuries, and the injuries of anyone else in your car.

Since liability coverage is basic and limited, you’ll pay about half the price compared to full coverage. That’s about $70 a month on average.

Depending on which state you live in, you may be legally obligated to carry more than just liability insurance. Use this map to find your state and see what you’re required to have.

Simply put, if you can cover the cost to repair your own car, or get a new one, and your state allows it, you may be able to carry liability insurance only.

Full Coverage

Full coverage is more complex and expensive auto insurance compared to liability insurance. It also means you’re protected from various types of other accidents.

Typically, full coverage insurance means you have collision and comprehensive coverage on top of liability insurance.

Collision Insurance

Collision insurance covers repairs to any damage to your own vehicle in an accident where you’re at fault. It can also cover repairs to your car in a crash where the other driver is at fault, but they don’t have enough insurance to cover the cost of your repairs. If you hit a tree or another object, collision will also cover the damage.

A 2017 report (the most recent data) shows the average cost of collision insurance in the U.S. is about $363 per year.

Comprehensive Coverage

You can think of comprehensive coverage as anything that could happen to damage your car that is beyond your control.

Acts of nature like floods, fires, or a tree falling on your car are covered by comprehensive insurance. Damage caused by animals falls into this category too. Comprehensive also has your back on theft, vandalism, and damage caused to your windows or windshield.

If you lease or finance your car, chances are you will be required to carry full coverage. The average cost for full coverage is about $140 a month or $1,675 a year.

Injuries and Deaths Due to an Accident

Remember those six million car accidents happening every year in the U.S.? About 3 million people are hurt in those accidents and more than 90 people die each day in car crashes. Politolaw.com says the most common injuries in car accidents they see are to the knees, shoulders, back, spine, and head.

Let’s talk about medical bills and funeral costs and what coverage you’ll need to make sure you and your family are protected.

Remember to check the law in the state you live in. Some states require you to have some sort of personal injury protection coverage or PIP. Only 12 states fall into this category.

This is sometimes called ‘no-fault’ coverage which means your medical expenses are covered regardless of who’s at fault for the accident. PIP insurance can also take care of lost wages and funeral expenses in some cases.

If you’re not in a ‘no-fault’ state and a loved one is killed in an accident that wasn’t their fault, you can look into adding uninsured or underinsured coverage to your policy. This is helpful when the other driver doesn’t have insurance to cover medical or funeral expenses.

Choosing the Right Auto Insurance Plan

It’s a delicate balancing act to make sure you’re completely covered while you drive while not spending a fortune for car insurance plans.

Be sure you are following the law for the state you live in when it comes to what kind of coverage you’re carrying. Where you live, how you drive and the value of your car are important factors when deciding whether liability insurance or full coverage insurance is right for you. Be sure to ask a lot of questions from your insurance company so there are no surprises if you get into an accident.

If you found this article helpful, you’ll want to read more from our Finance/Personal Finance category. Drive safely!