Full Coverage vs. Liability Only: When Each One Makes Financial Sense

"Full coverage" isn't actually an insurance industry term - it's shorthand for liability plus comprehensive plus collision. Understanding what each component covers, and when each is worth paying for, can save you hundreds per year without creating dangerous gaps in protection.

What Each Coverage Type Actually Covers

Liability insurance pays for damage you cause to other people and their property. If you rear-end someone and cause $30,000 in injuries and $10,000 in vehicle damage, your liability coverage pays (up to your policy limits). Liability is required in 49 states (New Hampshire is the exception) and protects your assets from lawsuits. This is the coverage you should never drop or minimize.

Collision insurance pays to repair or replace your own car after an accident, regardless of fault. If you hit a tree, rear-end someone, or another driver hits you and doesn't have insurance, collision covers your vehicle damage minus your deductible.

Comprehensive insurance covers non-collision damage to your car: theft, vandalism, hail, flooding, fire, falling objects, animal strikes, and broken windshields. In many states, comprehensive claims don't raise your rates (unlike collision claims).

The Financial Decision Framework

Definitely keep full coverage if: You have a car loan or lease (your lender requires it), your car is worth more than $10,000, you couldn't afford to replace your car out of pocket if it were totaled, or you live in an area with high theft or severe weather risk.

Consider dropping collision (keep comprehensive) if: Your car is worth $5,000-$10,000, you have enough savings to cover a replacement if totaled, and your annual collision premium exceeds 10% of the car's value. Keep comprehensive because it's usually cheap ($100-$200/year) and covers expensive scenarios like theft and hail damage.

Consider liability only if: Your car is worth less than $5,000, you have savings to replace it if totaled, and your combined comprehensive + collision premiums exceed 10-15% of the car's value annually.

Running the Math: A Real Example

Let's say you drive a 2016 Honda Civic worth $12,000. Your current full coverage premium is $1,800/year, of which $600 is collision and $200 is comprehensive. Collision cost: $600/year = 5% of car value. This is well worth keeping. Now imagine the car is worth $4,000. Collision cost $600/year = 15% of car value. In 3 years of premiums, you'd pay $1,800 - almost half the car's value. Dropping collision and self-insuring makes financial sense if you can absorb a $4,000 loss.

The Coverages You Should Never Drop

Liability: Never reduce below 100/300/100. The cost difference between minimum and recommended liability limits is usually just $10-$20/month, but the protection difference is enormous. A serious accident can easily exceed $100,000 in damages - state minimums of 25/50/25 leave you exposed to personal lawsuits for the difference.

Uninsured/underinsured motorist (UM/UIM): About 12.6% of drivers are uninsured. If one hits you and you don't have UM coverage, you're paying your own medical bills and car repairs. UM/UIM costs just $50-$150/year for most drivers and covers what is statistically a very real risk.

Medical payments or PIP: Covers your medical bills regardless of fault. Even with health insurance, the copays and deductibles from a car accident can be thousands. Medical payments coverage fills that gap for a nominal premium.

When to Reassess

Review your coverage decision whenever your car's value drops significantly (check annually on Kelley Blue Book), when you pay off your car loan (lender requirements no longer apply), when your financial situation changes (larger emergency fund means you can absorb more risk), and when your premium increases at renewal (the math may shift in favor of dropping coverage). The goal isn't to minimize premium - it's to find the optimal balance between what you pay in premiums and what you'd pay out of pocket in a worst-case scenario.