Why “Liability Only” is a “Please Sue Me” Sign If You Own a Home.
Saving $50 a Month Cost My Friend His House.
My friend tried to save money by getting “liability only” car insurance with the bare minimum state limits. He caused a serious accident that resulted in major injuries to the other driver. The lawsuit that followed was for $500,000. His cheap policy only covered the first $50,000. For the remaining $450,000, the lawyers went after his personal assets—starting with the equity in his home. He learned a brutal lesson: cheap liability insurance is a neon sign telling the world you have assets that are ripe for the taking in a lawsuit.
“Full Coverage” Isn’t a Real Thing. Here’s What It Actually Means.
Stop Saying It. Start Understanding What You’re Buying.
“Full coverage” is a slang term, not an actual insurance product. When people say it, they generally mean a policy that includes three key components: 1) Liability coverage, which pays for damage you do to others. 2) Collision coverage, which pays to repair your own car after an accident. And 3) Comprehensive coverage, which pays for theft, hail, or other non-accident damage to your car. So, “full coverage” isn’t a magical shield; it’s a specific bundle of these three core protections.
If Your Car is Worth Less Than $3,000, Liability Only Might Be a Smart Bet.
The Point of No Return for an Old Beater.
I drive an old, beat-up pickup truck that’s worth about $2,500. For this car, I carry “liability only” insurance, and it’s a smart financial decision. The “full coverage” premium would be an extra $600 a year. It would take only four years of paying that extra premium for me to have paid more than the car is even worth. It makes no sense to pay a fortune to insure an asset that has very little value. I’m willing to bet that I won’t have an at-fault accident, and I’m prepared to just walk away from the car if I do.
How Liability Only Leaves YOU to Pay for Your Car Repairs (or Replacement).
The “On Your Own” Clause.
Liability-only insurance has one job: to pay for the damage you do to other people’s cars and property. It does absolutely nothing for your own vehicle. If you cause an accident, you are 100% on your own to pay for the repairs to your car, or to buy a new one if it’s totaled. It is a bet that you can afford to absorb the full financial loss of your own vehicle.
A Tale of Two Accidents: One With Liability, One With “Full Coverage.”
A Total Loss vs. a Minor Inconvenience.
My friend and I were in similar at-fault accidents. He had liability-only insurance. His car was totaled, and he had to scramble to come up with $15,000 to buy a new one. I had “full coverage.” My car was also totaled. I paid my $500 deductible, and the insurance company sent me a check for the full value of my car. For me, the accident was a minor inconvenience. For him, it was a major financial crisis.
The Cost of “Peace of Mind”: Is Full Coverage Worth the Extra Premium?
For My $30,000 Car, It’s a No-Brainer.
I pay about $800 extra per year for collision and comprehensive coverage on my new car. Is it worth it? Absolutely. I am paying $800 to protect a $30,000 asset. For me, that is a fantastic deal. The peace of mind of knowing that a single mistake on the road won’t lead to a five-figure financial disaster is worth every single penny of that extra premium. It’s not just car insurance; it’s sleep-at-night insurance.
Don’t Be “Penny Wise and Pound Foolish.” How Liability Only Can Cost You Everything.
Saving a Little Can Cost You a Lot.
Choosing liability-only coverage to save a few hundred dollars a year on a car that is worth $10,000 or more is the definition of “penny wise and pound foolish.” You are saving a small, known amount in premiums, but you are exposing yourself to a massive, unknown risk. A single accident can wipe out your “savings” tenfold. If you can’t afford to write a check to replace your car tomorrow, you can’t afford to have liability-only insurance.
The Bank Owns Your Car? You Have No Choice. You Must Have Full Coverage.
Protecting the Lender’s Asset.
If you have a loan or a lease on your car, you will be contractually required by the bank or leasing company to carry “full coverage.” They are not doing this to protect you; they are doing it to protect their asset. If you total the car, the lender wants to ensure there is an insurance policy in place to pay off the loan balance. This is a non-negotiable requirement. The day your car is paid off is the day you finally have the freedom to choose for yourself.
The Break-Even Analysis: When Does it Make Sense to Drop Full Coverage?
The Simple Math to Guide Your Decision.
A good rule of thumb is the “10% rule.” Look at the annual cost of your collision and comprehensive coverage. If that cost is more than 10% of your car’s current Kelley Blue Book value, it’s time to seriously consider dropping it. For example, if your full coverage costs $800 a year and your car is only worth $5,000, you are paying a huge premium to protect a small asset. You’ve reached the point where the cost of the insurance starts to outweigh the potential benefit.
Protecting Others (Liability) vs. Protecting Yourself and Your Car (Full Coverage).
The Two Halves of a Complete Auto Policy.
This is the simplest way to think about it. Liability insurance is about your responsibility to others. It protects your assets from lawsuits if you hurt someone else. “Full coverage” (collision and comprehensive) is about protecting yourself and your own property. It ensures that your personal asset—your car—can be repaired or replaced after an accident. A complete, responsible auto insurance plan includes both halves of this equation.