Why You Might Not Need Full Coverage Car Insurance

Why You Might Not Need Full Coverage Car Insurance

Full coverage auto insurance is a package of coverages that protects you and your vehicle in the event of an accident. It can, however, mean different things to different people in different states — and to their auto insurance companies.

That is why the first step is to define what full coverage means for you.

“Auto insurance is a collection of benefits. There are a variety of benefits available; some are required by states, while others are optional, according to Laura Adams, insurance expert and host of the “Money Girl” podcast. “Typically, auto insurance companies will assist you in determining how much coverage you require.”

Here is everything you need to know about full coverage auto insurance.

Full Coverage Car Insurance at a Glance

There is no standard definition of full coverage car insurance; you can tailor it to be whatever you want it to be — with a few exceptions. Most states require drivers to have liability insurance, which covers property damage or bodily harm caused to others. However, state minimums for liability insurance are usually insufficient to protect you in the event of a serious accident, which is why many insurers offer additional coverages in addition to liability insurance.

Many other types of coverage, such as gap insurance and comprehensive and collision insurance, are optional and can be added to your policy depending on the insurer and your circumstances.

“If that repair or replacement is financially difficult for you, that is why you have insurance — to protect you from that risk,” Adams says.

According to Adams, it is common for people to have liability, comprehensive, and collision insurance, especially if they have a new or expensive car. However, it is ultimately up to you to choose the amount of coverage that fits your budget while also meeting state requirements and adequately protecting you and your vehicle. Full coverage car insurance could include the following types of insurance:

• Liability insurance (bodily injury and property damage): The bare minimum coverage you need to drive in most states. This type of coverage pays for other people's property damage and injuries if you are at fault in an accident, up to your covered limit.
• Collision insurance: Coverage that protects your car if it is damaged in an accident with another vehicle or an object.
• Comprehensive insurance: Coverage that protects your car if it is damaged in ways other than a collision, such as theft, vandalism, and animal-related damage. 
• Medical payments coverage/personal injury protection: This type of coverage pays for medical expenses for you and your passengers regardless of who is at fault in the accident. Carrying a firearm is required in some states, such as Michigan and Kentucky, but is optional in others.
• Uninsured and underinsured motorist coverage: This type of coverage protects you if you are involved in an accident with someone who does not have liability insurance through no fault of your own.
• Rental reimbursement coverage: If your car is being repaired after you file a claim, this type of coverage pays for transportation costs, such as a rental car or public transportation.
• Gap insurance: Coverage that makes up the difference between the current value of your vehicle and the amount you owe on it.

How Much Does Full Coverage Cost?

Adding certain coverages to your auto insurance policy can significantly raise the overall cost of your policy. It is sometimes necessary. Sometimes it isn't. It's critical to understand the distinction so you don't overpay every year. According to AAA data, auto insurance now costs an average of $1,202 per year in the United States, but this figure can vary greatly depending on the individual. Here are the average prices for full coverage at the five largest insurance companies:

Average Cost of Full Coverage by Insurance Company

Who Needs Full Coverage Car Insurance?

Purchasing full coverage auto insurance is not for everyone. Before deciding how much coverage to purchase for your car, ask yourself, "What is the risk of me having this potential accident?" Could I really afford it? “Do I have enough money to make that repair right away?” Adams explains.

Full coverage car insurance may be appropriate for you if:

• You own a new or expensive automobile.
• Your car is leased or financed. To protect their investment, most lenders require liability, collision, and comprehensive coverage.
• You live in a densely populated area where you are more likely to be involved in an accident.
• You live in an area prone to severe weather, high rates of car theft, or a high risk of animal collisions.
• If your car is severely damaged, totaled, or stolen, you cannot afford to repair or replace it.

However, if you have an older vehicle, full coverage may not be worth the cost. There are several reasons for this, including the fact that comprehensive and collision insurance only pay up to the actual cash value of your car at the time it is damaged or stolen, and there is usually an insurance deductible you must pay out of pocket toward the car's repairs or replacement.

Assume you pay $700 per year for comprehensive and collision insurance, with a $1,000 deductible, but your car is only worth $3,000. Your insurance company would only reimburse you up to $2,000, which is only a few hundred dollars more than the cost of the coverage. That is why, when auditing your car insurance bill and determining how much coverage is appropriate for your budget, it is critical to check your car's value every year.

“A lot of people may drop comprehensive and collision insurance when the value of the car is really low and they feel it's just not worth paying the insurance premium any longer,” Adams says. “You must make that decision on your own whether you can afford to replace it.”

If you're not sure how much coverage you need, consult with an independent car insurance agent and compare prices across coverage options when shopping for car insurance.

How to Sign Up For Full Coverage Auto Insurance

If you decide that comprehensive and collision coverage are both necessary, you can easily add them to your auto insurance policy by logging into your online account or calling your insurer.

You may be required to provide your insurer with additional information about your vehicle, such as the make, model, vehicle identification number, safety features, current odometer reading, and annual mileage driven.

Keep in mind that adding collision and comprehensive insurance will raise the cost of your policy above what it would be if you only had your state's mandatory liability coverage. Still, as long as full coverage car insurance makes sense for your situation, it will be worth the investment.