Liability vs. Full Coverage Car Insurance: Which Is Better?

What Is Liability Coverage?

Liability coverage, sometimes referred to as liability-only coverage, is a form of car insurance that will pay for the damages and medical bills that befall another driver and passengers in an accident that is determined to be your fault.

With liability coverage, your insurance policy will pay for medical expenses of the other driver and passengers if you cause an accident. Any additional expenses will need to be covered by you. That includes medical treatment for any injuries you or your passengers might have, the cost to replace your totaled car and the cost to rent a car while you're without a vehicle.

Essentially, liability will often cover the following for the other drivers and their passengers:

• Property damage, such as damage to another car or a building
• Medical bills
• Another driver's lost wages due to injuries
• A rental car for the other driver to drive while their car is repaired

Pros and Cons of Liability Coverage

If you're thinking of buying liability coverage, it's important to review the benefits and drawbacks of doing so.

Pros

• You'll pay less for coverage. Liability coverage is usually a much cheaper form of car insurance than full coverage. For instance, Liberty Mutual's website says that consumers can expect to pay 64% more for full coverage than a liability-only policy.
• It fulfills legal requirements for insurance. Driving without insurance is against the law in most states, so you really have to buy liability if you want to legally get behind the wheel of a car. Even in states that allow you to drive without insurance, you still need proof that you can pay for damages in the event of an accident. So if money is tight, liability insurance allows you to pay less, to legally drive.

Cons

• Your own vehicle isn't covered. If your car is damaged in a wreck that you caused, your insurance will pay for the damage done to another vehicle and medical bills for the other party, but you'll be on your own when it comes to your vehicle or injuries.
• You won't have any coverage for incidents other than collisions. If your car is banged up due to hail or a collision with a deer, or if your car is stolen, your liability insurance will not cover you.

What Is Full Coverage?

Full coverage generally refers to having comprehensive and collision insurance, as well as liability insurance. Because of that, if you want "full coverage," you'll want to read over the fine print of any insurance policy you pay for and make sure you're actually covered for everything you think you are.

But typically, if you get full coverage for your vehicle, you will be covered for:

• Car accidents
• Damage or injuries to property or people
• Damage due to striking an animal
• Theft
• Vandalism
• Damage from natural occurrences, such as if your car is struck by lightning, hail or a falling tree

Pros and Cons of Full Coverage

If you're thinking of buying full coverage, there are a couple pros and cons to consider.

Pros

• Coverage is more robust. Liability is more affordable insurance than full coverage, but if you inadvertently cause a car wreck and discover your insurer won't pay for your damages or medical bills, it could be costly. If you pay for full coverage, your insurer is more likely to pay for expenses if something bad happens to your car.
• More peace of mind. You may feel the cost of full insurance is worth the peace of mind you'll have, knowing that if something goes wrong with your car, your insurance policy will probably be able to pay for most of the damages, minus the deductible.

Cons

• Premiums for full coverage are higher. Full coverage, because it potentially will pay more if something goes wrong, is more expensive and thus could be harder to budget for than liability.
• There still may be blind spots in your coverage. Full coverage, as noted, is a generic term. If you buy full coverage from an insurer, you'll need to go over the fine print to make sure that, for instance, medical bills are paid. You may need additional insurance to make sure that medical bills are paid in the event of a car accident.

When to Choose Liability vs. Full Coverage

So should you choose liability or full coverage when you're buying car insurance? The general rule of thumb is that if you should buy full coverage if:

• You're driving a new car. New vehicles are typically quite costly, and you're putting yourself at much more financial risk by having minimal insurance coverage on a new vehicle. Further, many lenders actually require that borrowers purchase full coverage on financed vehicles.
• It would be a financial crisis if you lost your car. If you would have trouble repairing or replacing the vehicle if something happened to it, you should consider getting full coverage.
• You're leasing a car. As with vehicles that are financed with a loan, you will likely be required to have full coverage with a lease.

So is there ever a time to consider buying liability only instead of full coverage? Yes. It's a judgment call, but you may want to purchase liability in the following scenarios.

• You're on a very tight budget. If you simply feel that you can't afford to pay for full coverage, and you own your car outright or the lender is no longer requiring full coverage, you may decide that liability insurance is more practical.
• You have an old car. Depending on the age and condition of your vehicle, the cost of full coverage might quickly eclipse its value. But having an older vehicle shouldn't make you automatically get rid of full coverage—older cars sometimes hold their value. You also may want your insurance to fix your old car if it gets banged up.
• You have a healthy savings account. You may feel like it would not be a huge imposition to be in a wreck and lose your car. If you have plenty of money saved in your emergency fund for repairs or a new car, you might feel comfortable buying only liability coverage. Then again, you might consider doing what you can to avoid having to empty your emergency fund—including by having full coverage on your vehicle.

What Should Be Driving Your Decision?

Generally, state law requires that you have at least liability coverage for your vehicle. But how much and what types of coverage you purchase beyond that is up to your own judgment and risk tolerance.

Still, if you think you'd be in financial trouble if you didn't have an insurance policy that could pay for the expense of damaging or losing your car, full coverage may be a better choice.

To potentially find a lower rate on car insurance, consider using Experian's auto insurance comparison tool.