Is «liability only» insurance a bad idea?

Most people think there are only two kinds of auto insurance – full coverage and liability only. 

Full coverage typically means that someone has liability PLUS collision and comprehensive coverage.  That means that they are covered if they cause damage to someone else (liability), if their vehicle is damaged in an accident they cause (collision) and for things like hail damage (comprehensive).  

“Liability only” is the bare bones option that ONLY covers bodily injury to another person or damage you cause to another person’s property. It means that there is NO coverage for your vehicle included.  Why would someone want that?  

Liability coverage is what is required by the state in order to operate a vehicle.  Without it, you can get a ticket or even lose your license.  

However, collision and comprehensive are only required if you have a lienholder that requires them.  Most lienholders do require it, but if your vehicle is paid off then it is up to you to cover the vehicle or not. 

Here are things to consider before choosing to carry liability only: 

How much money do you have in savings?  If your car was totaled tomorrow, would you have enough to purchase a vehicle to replace it?  If you only have enough for a down payment, could you financially handle car payments? 

How much is your car worth?  If the car is worth $10,000, then you would be more likely to want to insure that value.  If it’s worth only $1,000 or less, you might feel it’s a risk you’re willing to take. 

The key here is to think about what would benefit you the most.  Look at the insurance cost of liability only or full coverage.  (We can run this comparison for you.)  Personal finance expert Dave Ramsey says “It may save you a little money to drop collision insurance on your car, but it usually isn’t worth the risk.”

If you have questions about auto insurance give us a call at (979) 297-2655.