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When Does Liability Only Car Insurance Make Sense?

By on January 26, 2012 in Auto Insurance, Insurance

When Does Liability Only Car Insurance Make Sense?In today’s litigious society where you can be sued for almost anything, proper levels of automobile insurance is a necessity. Simply bumping into someone in rush hour traffic isn’t as simple as exchanging information and paying for a body shop to replace their bumper. The person can claim neck and back pain, emotional distress, loss from work, and medical bills. You need liability insurance coverage on your vehicle and all states except New Hampshire require you to have this car insurance. (New Hampshire requires you to prove you are financially capable of covering the liability yourself.)

Yet we all know the car insurance quotes we get include options for full coverage insurance that includes collision and comprehensive coverage on our vehicle. These coverages will pay to repair or replace your vehicle if you cause the accident or if an act of nature damages it.

Does it ever make sense to use liability only insurance? Or should you always use full coverage insurance?

When to Use Liability Only Car Insurance

Liability only insurance has a few select uses. The first is simple: if you cannot afford full coverage insurance, but need to use a vehicle, you need liability only insurance since it is the bare minimum car insurance you can have and still be able to legally drive.

But legality aside, there is one other time that this minimal insurance coverage is beneficial: when your car is worthless. There comes a point in time when the vehicle you are driving while depreciate so low in value that any significant damage to the car will result in it costing more to repair the vehicle than to buy a new one. Your insurance coverage would total out the vehicle, cut you a check for its value, and send you on your way. In this situation it is costly and illogical to carry full coverage car insurance on the vehicle.

You can calculate how much money you would save by dropping your collision and comprehensive coverage and relying solely on liability coverage. If your car is only worth $1,000 and you have the financial means to replace it if something were to happen to it, it probably makes sense to save money on those extra insurance coverages and pocket the money for your next vehicle. You might get lucky and end up safely driving your old car with just liability coverage for many years. This would allow you to save a significant amount of money for your next vehicle.

When to Use Full Coverage Car Insurance

Unlike liability only car insurance, full coverage car insurance is one of the most popular insurance products available today. There is significant competition amongst insurance companies which leads to low car insurance quotes for drivers.

 

Liability only car insurance is required to drive in the United States (except the aforementioned New Hampshire). However, you may be surprised to know that there are certain instances where you will be required to have full coverage insurance. The only difference is it won’t be the driving laws in your state requiring you to have this insurance but other parties that hold an interest in your car.

 

If you buy a car with a loan the financing company will require you to have full coverage insurance until the loan is paid off. In this way the insurance is protecting not only you, but really the financing company. If you drive off of the lot and total the car 5 minutes later without full coverage insurance the financing company is going to have to pursue you legally to have the loan repaid. With full coverage car insurance your insurance company would provide payment to pay off the loan.

 

Another scenario where full coverage is required is when you are leasing a vehicle. The idea is the same: you don’t technically own the vehicle. The leasing company needs to protect the asset that it owns but is allowing you to drive.

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