The average cost of a new car now reaches nearly $50,000, and used cars aren’t far behind at over $30,000. With prices on the rise again, full-coverage car insurance can protect your vehicle and provide coverage for accidents that result in injuries or property damage. But what is full coverage car insurance, exactly?
Most states require drivers to carry auto insurance, but this requirement usually targets liability insurance. Basic coverage required by law doesn’t protect your vehicle against damage. Instead, you’ll need full coverage car insurance to protect against both liability risks and physical damage to your vehicle.
Here’s what you’ll need to know about full coverage car insurance and how to protect your ride.
- What full coverage car insurance is
- Primary coverages on a car insurance policy
- When you need full coverage car insurance
- How to get full coverage car insurance
- Whether full coverage insurance can be added to a car with basic coverage
- When the coverage can be dropped
What Is Full Coverage Car Insurance?
There are different types of car insurance policies, but full coverage car insurance isn’t actually a policy type. Instead, the term full coverage car insurance refers to state-required auto insurance combined with physical damage coverage.
This is what lenders mean when they require full coverage for an auto loan.
Insurance requirements vary by state, but most states require liability insurance at a minimum. Depending on where you live, your state may require any of the following types of coverage:
- Auto liability insurance
- Medical coverage
- Uninsured/underinsured motorist protection
Full coverage car insurance expands a policy with these required coverages to include protection against physical damage, as well.
Your physical damage insurance includes:
- Collision insurance
- Comprehensive insurance
The physical damage coverage on your policy allows your policy to help pay for damage caused to your vehicle when no one else is at fault.
For example, if you accidentally back the Buick into the mailbox at the end of the driveway, no other driver caused that accident. Without collision insurance, you pay for the repairs yourself. With collision insurance, the insurer can pay for repairs that exceed your deductible.
By contrast, if a neighbor accidentally backed into your Buick parked in the street, your neighbor’s liability insurance should pay for repairs to your car.
While collision coverage targets damage in which no one else is at fault, there are cases where you can use your collision insurance even if another driver caused the damage.
Primary Coverages on a Car Insurance Policy
A full coverage car insurance policy offers more protection compared to a basic liability-only policy, so it’s important to understand the primary coverages you’re buying.
Auto liability insurance
Liability insurance on a personal auto policy targets personal auto-related risks. Your liability insurance pays for accidental injuries caused to others and accidental damage caused to the property of others.
For example, if you misjudge the distance when backing out of a parking space and hit a parked car, you’re responsible for the damage to the parked car. The property damage liability insurance on your auto policy can help pay the repair costs for the damaged vehicle.
Similarly, if you’re at fault in an accident resulting in an injury to someone else, the bodily injury liability insurance on your auto policy can help pay for the medical needs of the injured person.
Each state sets its own minimum coverage limits for required liability insurance, but you have the option to choose higher coverage limits for better protection.
Many states also require medical coverage on an auto policy.
Some states offer personal injury protection (PIP), a type of coverage that can cover medical expenses regardless of who is at fault. In other states, you’ll find Med Pay (medical payments coverage), which can cover medical expenses due to auto accidents in which you were at fault.
Discuss your medical insurance options with your insurance agent. In some cases, you may be able to make your existing health insurance the primary medical coverage for your auto insurance policy.
Uninsured/Underinsured Motorist Protection
If an uninsured motorist causes an injury or damages your vehicle, uninsured motorist (UM) protection lets your own policy provide coverage.
Similarly, if you suffer an injury or damage to your vehicle due to a driver without enough insurance, underinsured motorist (UIM) protection lets your policy provide coverage.
Nearly half of U.S. states require UM, while more than a dozen require drivers to carry UIM.
As part of full coverage car insurance, collision insurance pays for damage caused by contact with another vehicle or a fixed object. Damage claims due to vehicle rollovers are also covered by collision insurance, as are damage claims due to potholes.
Sometimes called other-than-collision coverage, comprehensive insurance protects against physical damage (or loss) due to reasons other than collision.
Covered risks include theft, vandalism, falling objects, fire, floods, and damage due to animals. Glass damage also falls under comp coverage if the damage was not caused by a collision.
Other Coverage Options
Most insurance policies offer additional coverages and options, as well, some of which hinge upon existing coverages.
For example, you can often add rental car reimbursement to your policy. This coverage provides an allowance to rent a car if your vehicle is out of service due to a covered claim. However, you can’t add this coverage without first adding physical damage coverage (collision or comprehensive).
Other auto insurance riders (add-ons) to consider:
- Gap insurance
- Roadside assistance
- Mechanical breakdown insurance
- Ride-hailing endorsement
- New car replacement coverage
- Sound system replacement coverage
Insurance needs can change over time, and you can customize your policy to match your needs as they change.
For example, if you start driving for a ride-hailing company, you can add the extra coverage you need at that time. Other policy options, like gap insurance, may only be available when the car is new.
When Do You Need Full Coverage Car Insurance?
States don’t require full coverage—instead, each state mandates the minimum coverage for liability insurance. Some also mandate medical coverage or UM/UIM.
However, lenders and leasing companies typically require full coverage as part of the loan or leasing agreement. Once the loan is paid off, full coverage is no longer required and you have the option to drop physical damage insurance from your policy.
But even when not required, full coverage can be a wise investment.
For example, let’s say you buy a new car for $40,000 with a five-year loan. Especially in these strange times for swelling new and used car prices, depreciation rates vary by make and model. Before the vehicle shortage upended the market, you could expect a five-year-old car to keep about 40 percent of its original value in many cases.
In this example, the car is still worth $16,000 at the end of the loan term. For many households, it makes sense to keep full coverage because the potential loss is still significant.
How to Get Full Coverage Car Insurance
If you have an accident, the coverage in place at the time of the accident is the only coverage you’ll have. If you add coverage or adjust limits after an accident, those changes only apply going forward.
When the time comes to shop for a policy, collect a few quotes from different providers. But it’s also important to go into the process with a plan that provides the most protection.
Consider Higher Liability Insurance Limits
The state requirements for liability insurance are very low in some cases. For example, New Jersey only requires drivers to carry $5,000 in property damage liability insurance. Several other states have similarly low requirements.
Consider higher limits than those required by your state. If you’re at fault in an accident and the damage or cost of injuries exceeds your coverage limits, you can be held personally responsible to pay the difference.
A liability claim that exceeds your coverage limit can put your home, savings, and future earnings at risk.
Choose a Deductible You Can Afford
The deductible is the part of the claim paid by the policyholder. While insurers use deductibles to keep coverage more affordable, a deductible can be an expensive surprise if you have a claim.
Collision deductibles can be as low as $500 or as high as $2,500. Lower deductibles can lead to higher premiums but also offer lower out-of-pocket expenses when you have a claim. Conversely, higher deductibles can lead to lower premiums. In effect, you’re self-insuring part of the risk with the deductible.
Also, consider whether the deductible might prevent claims altogether. When you have a claim, the insurer deducts the deductible from the claim payment. With a higher deductible, many claims won’t be paid at all.
Collision and comprehensive insurance both use deductibles. With comp coverage, in particular, a higher deductible might not make sense. Comp claims are usually much lower in value than collision claims, which means the deductible might prevent payment for the claim or reduce the payment to a small amount.
Ask your agent to give you quotes with different deductibles before choosing a higher deductible amount. Sometimes, the premium savings aren’t enough to offset the potential out-of-pocket costs you might see with a higher deductible.
Ask About Discounts
Your agent can’t get you a special price for your car insurance policy, but it often pays to ask which discounts are available.
For example, many insurers offer a multi-policy discount if you buy home and auto insurance together. Some insurers also offer a discount if you purchase a life insurance policy along with auto insurance through the same company. The savings can add up quickly, but you might never know if you don’t ask.
Discounts for multiple vehicles are also common, as well as discounts for safety features on your car. You don’t have to take extra steps to earn these discounts.
Many insurers even offer a discount for completing an approved defensive driving course. Expect to spend about six hours on the course, usually online. In exchange, you get a discount that lowers your premiums for up to three years.
Can I Add Full Coverage to a Car That Has Basic Coverage?
You can add collision or comprehensive coverage to a car that has only basic (liability) coverage, but you’ll need to get the car inspected for pre-existing damage. Your agent can help with the process, or your insurer may have a local inspection center that can photograph your car before adding the coverage.
This step helps reduce fraudulent claims for damage that occurred before the coverage was added, keeping car insurance costs more affordable for everyone.
When Can I Drop Full Coverage?
Because lenders and leasing companies require full coverage, you’ll have to keep full coverage as long as you have a loan or a lease. Beyond that point, the decision to remove full coverage revolves around the value of the car and your ability (or willingness) to absorb a loss if the car is damaged.
For example, if you have a high-mileage car that runs well but isn’t worth much on paper, full coverage car insurance may not be the best investment. In this example, if you have a claim, the deductible will reduce the insurance payout or possibly eliminate it altogether.
Instead, it might make better financial sense to put the money you’d pay for collision and comprehensive insurance aside in a savings account. This strategy lets you self-insure for damage to your car while maintaining the coverage you need for liability risks.
You also have the option to choose collision insurance or comprehensive insurance independently.
Many times, owners of older vehicles that are paid off choose to carry comprehensive insurance and drop collision insurance when the car isn’t worth much anymore. Of the two, comprehensive insurance is the more affordable coverage and provides coverage for common risks such as glass damage.
So Is Full Coverage Car Insurance Worth It?
Full coverage car insurance is a must-have for new cars and leased cars, but the enhanced protection of a full coverage auto insurance policy can be a wise choice for vehicles that are paid off, as well.
As your car gets older, you can ask your insurance agent to compare premiums with or without full coverage. With real-world numbers, you can make a well-educated decision on whether full coverage is still the right choice for you based on your needs and the value of your car.