When we advise people about how they can reduce their auto insurance expenses, one of the things we suggest is to consider dropping full coverage in favor of liability coverage only. This can save a lot of money if your car is older, paid for, and no longer has a high value, but is not an option if your car is leased or financed. Whether or not you choose to drop your full coverage, however, it's important to understand the difference between each type of coverage.
Liability Only Auto Insurance
Liability insurance is coverage that pays for damage that you cause to other cars, and any people inside them. It is mandated by every state in the country (except New Hampshire), but the minimum coverage levels that are required for you to legally drive your vehicle vary from state to state, though all are expressed in three parts.
A common split is 25/50/15, in which the first number is the maximum amount (in thousands of dollars) that your insurance company will pay for injuries to a single person, in a single accident. The second number refers to the maximum amount your insurer will pay for all injuries in a single accident, and the last number is the maximum per accident amount that your insurance company will pay for property damage.
It's important to remember that these numbers represent the common minimum required amounts of coverage. It may be wise to consider purchasing more than the minimum in your state, especially if you own a home or business, because if an accident causes more property damage or bodily injuries than your insurance will cover, you could be sued for the rest.
In many states, motorists are also required to have a minimum amount of un- or under-insured motorist coverage, to pay damages when there's an accident with someone who has no insurance, and a few states have a separate "personal injury protection" product that is also required, but strictly speaking, these are NOT liability coverage, but other, optional insurance products.
While liability coverage is often enough to meet your state's minimum coverage requirements, if your car is leased or financed your lender will generally require full coverage, and if your car is under two years old - even if there is no lease or loan on it - it's a good idea to carry full coverage as well.
Just as liability insurance represents more than one type of coverage, what we call "full coverage" really refers to two other insurance products that are usually purchased along with liability coverage. They are comprehensive coverage and collision coverage, and it's possible to buy comprehensive without collision, but you cannot have collision without comprehensive.
So, what do these two products actually cover?
Well, comprehensive coverage is often described as OTC or "other than collision" cover, because it pays for damages to your vehicle that are caused by things like fire, weather, vandalism, and theft, as well as car vs. deer (or other animal) crashes. Another way to look at it is that it covers things that aren't usually your fault, or under your control.
Collision coverage, on the other hand, is an add-on to comprehensive coverage, and it pays for damages to your car if you're in an accident (unless the other party is uninsured, in which case, your uninsured motorist coverage kicks in).
A more simplistic way of looking at it is that liability covers accident-related damage that you cause to other people or property, while collision covers your own damages, and comprehensive kicks in when the damage is caused by anything else.