In this guide
Liability-only car insurance pays for injuries and damage you cause to other people, but nothing for your own car. "Full coverage" usually means liability plus collision and comprehensive, which also pay to repair or replace your car. If you have a loan or lease, you'll almost always need full coverage. If your car is paid off and worth little, liability-only may be enough, as long as you could afford to replace the car yourself.
Key takeaways
- "Full coverage" isn't an official policy type. It usually means liability plus collision and comprehensive.
- Liability-only meets the legal requirement in most states but doesn't pay for damage to your own car.
- Lenders require collision and comprehensive on financed cars, and leases usually do too.
- Liability-only may make sense for an older, paid-off car you could afford to replace.
- Whichever you choose, your liability limits matter. State minimums may not be enough.
What liability-only covers
Liability coverage pays for harm you cause to others when you're at fault in an accident. It has two parts:
- Bodily injury liability pays for other people's injuries, such as medical bills and lost income.
- Property damage liability pays for damage to other people's property, such as their car or a fence.
The Insurance Information Institute (Triple-I) says virtually all states require liability coverage. A liability-only policy is the closest thing to a "bare minimum" policy. Depending on your state, it may also need to include coverages like personal injury protection (PIP) or uninsured motorist coverage.
What liability-only doesn't do is pay for your own car. If you cause a crash, hit a pole, or your car is stolen or damaged by hail, you'd pay for repairs or a replacement yourself.
What "full coverage" usually means
There's no standard legal definition of full coverage. It's shorthand that most people, lenders, and insurers use to mean a policy with:
- Liability coverage, at or above your state's minimum limits
- Collision coverage, which pays for damage to your car from hitting another vehicle or object, or rolling over
- Comprehensive coverage, which pays for theft and non-crash damage, such as fire, weather, vandalism, or hitting an animal
- Any other coverage your state requires
The National Association of Insurance Commissioners (NAIC) describes full coverage, in the context of a car loan, as carrying both comprehensive and collision coverage.
Watch out: "Full coverage" doesn't mean everything is covered. Policies still have limits, deductibles, and exclusions. Collision and comprehensive usually pay only up to the car's actual cash value, and extras like rental reimbursement, roadside help, or gap insurance are often separate.
For a closer look at each coverage, see our guide to car insurance coverage types.
Side-by-side comparison
| Situation | Liability-only | Full coverage |
|---|---|---|
| You injure another driver | Covered, up to your limits | Covered, up to your limits |
| You damage another person's car | Covered, up to your limits | Covered, up to your limits |
| You crash and damage your own car | Not covered | Covered by collision, minus deductible |
| Your car is stolen | Not covered | Covered by comprehensive, minus deductible |
| Hail, flood, or fire damages your car | Not covered | Covered by comprehensive, minus deductible |
| You hit a deer | Not covered | Covered by comprehensive, minus deductible |
| Meets most state legal requirements | Yes, if limits meet state minimums | Yes |
| Meets most lender and lease requirements | No | Usually yes |
| Relative cost | Lower | Higher |
Injuries to you and your passengers may be covered by PIP, medical payments, or uninsured motorist coverage under either type of policy, depending on what you buy and your state's rules.
When full coverage is required
State law doesn't require collision or comprehensive. But you'll usually need them if:
- You have a car loan. The NAIC notes that lenders require full coverage, meaning both collision and comprehensive. The car is the lender's collateral, so they want it protected.
- You lease the car. Lease agreements usually require collision and comprehensive, and often set minimum liability limits and maximum deductibles.
If you drop required coverage on a financed car, your loan agreement may allow the lender to buy coverage and add the cost to your loan. That coverage is often expensive and may protect only the lender. Check your loan contract for the exact terms.
Consider gap insurance on a newer car
New cars can lose value quickly. If your car is totaled, collision or comprehensive pays its actual cash value, which may be less than you still owe. The NAIC notes that gap insurance can pay the difference between your car's value and your loan balance. It may be offered by your insurer, dealer, or lender.
When liability-only may make sense
Once a car is paid off, the choice is yours. Liability-only is often worth considering when:
- The car is older and its value has dropped a lot.
- You could afford to repair or replace the car from savings if it were wrecked or stolen.
- The cost of collision and comprehensive is high compared with what they would likely pay after your deductible.
A rule of thumb
Triple-I suggests considering dropping collision and/or comprehensive if your car is worth less than 10 times the annual premium for that coverage. For example, if collision and comprehensive cost you a certain amount per year, multiply that by 10. If the car's value is below that number, the coverage may no longer be a good deal.
You can estimate your car's value with pricing guides, a dealer, or your bank. Remember that the insurer would subtract your deductible from any payment, which lowers the real benefit even more.
Tip: Ask yourself one question: "If this car were totaled tomorrow, could I replace it without real hardship?" If the answer is no, collision and comprehensive may still be worth keeping, even on an older car.
Middle-ground options
It doesn't have to be all or nothing. Depending on your insurer, you may be able to:
- Raise your deductibles instead of dropping coverage. Triple-I estimates that moving from a $200 to a $500 deductible could cut collision and comprehensive costs by 15% to 30%, and a $1,000 deductible could save 40% or more.
- Keep comprehensive but drop collision. Some insurers allow this. Comprehensive is often cheaper and still protects against theft, weather, and animal strikes.
- Review at each renewal. As your car ages, the math changes. Triple-I suggests reviewing coverage at renewal time.
For more ideas, see our guide on practical ways to lower your car insurance premium.
Don't skimp on liability limits
Whichever option you choose, your liability limits may matter more than whether you have collision. A damaged car has a ceiling on what it can cost you. A serious injury claim may not.
State minimum limits are often low. The Texas Department of Insurance, for example, warns that its 30/60/25 minimum may not be enough to cover a serious accident, leaving you to pay the rest. Triple-I suggests buying more than the minimum to protect assets like your home and savings. You can compare state requirements in our guide to minimum car insurance requirements by state.
Before you decide, it often helps to get quotes from several insurers for both options, using the same liability limits. That shows you exactly how much collision and comprehensive add to your premium.
Frequently asked questions
Is full coverage required by law?
No state requires collision or comprehensive by law. States generally require liability, and some also require PIP or uninsured motorist coverage. Lenders and leasing companies are what usually require full coverage.
Does full coverage pay if I'm at fault?
Yes. Your liability coverage pays for the other party's damages up to your limits, and your collision coverage pays for your own car's damage minus your deductible.
Can I switch to liability-only after paying off my car?
Usually, yes. Once the loan is paid off and the lender is removed from your policy, you can generally change your coverage. The NAIC suggests asking your insurer to remove the lienholder once you have proof of payoff, such as the title.
Does liability-only cover a hit-and-run on my car?
Liability itself doesn't. Uninsured motorist property damage coverage, where available, or collision coverage may help, depending on your state and policy.
Who can help me decide?
CoverMoose doesn't give personal advice. A licensed agent can review your situation, and your state insurance department can answer questions about requirements where you live.
Sources
- NAIC – What Does Auto Insurance Cover?
- NAIC – "Declarations" of Saving
- Insurance Information Institute – Nine ways to lower your auto insurance costs
- Insurance Information Institute – What is covered by a basic auto insurance policy?
- Insurance Information Institute – Background on: Compulsory auto/uninsured motorists
- Texas Department of Insurance – Auto insurance guide
General information only. This guide explains general concepts and is not insurance, legal or financial advice. Rules and prices vary by state and insurer. Check your policy documents and speak to a licensed insurance professional or your state insurance department about your situation.