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Is “Liability Only” Car Insurance Right for You?

3 min read

 

Understanding Liability Only Insurance

Before diving into whether liability only insurance is right for you, it’s crucial to understand what liability coverage entails. Liability insurance is essential as it covers damages to other vehicles and injuries to other people if you, the policyholder, are at fault in an accident. This means that if you cause an accident, you are legally responsible for the consequences—covering bills for damages and injuries from an insurance perspective.

It’s important to note that liability coverage does not cover repairs to your own vehicle or any injuries you might sustain. For your own vehicle’s damages in an accident, you would need collision and comprehensive coverage. This raises the question: why would anyone choose to forego collision and comprehensive coverage and opt for liability only?

Consider the Age and Value of the Vehicle

Liability only insurance is typically more suitable for older vehicles that have depreciated significantly in value. For instance, if you own a 10-year-old vehicle valued at $3,500, and you have full coverage auto insurance with a $1,000 deductible, consider this scenario: You get into an accident, and the repair costs amount to $1,700. You would pay your $1,000 deductible, and your insurance would cover the remaining $700. Now, think about the financial implications over time, especially if your insurance premiums increase after the claim. Could the long-term costs outweigh the benefits?

Evaluating Your Financial Situation

If you find yourself in a scenario similar to the one above, ask yourself: Do I have an emergency fund of at least $3,500 to replace my vehicle if necessary? If you can afford to replace or repair your vehicle out-of-pocket after an accident, liability only insurance could be a more cost-effective option. Conversely, if replacing or repairing your vehicle would be financially challenging without insurance, maintaining full coverage may be prudent.

Risk Assessment: A Personal Review

It’s important to consider your driving history, usual driving conditions, and the general accident rate in your area. Insurance companies use this information to determine risk and so should you. If your driving environment or history suggests higher risk, maintaining comprehensive coverage could be more beneficial to protect against potential large out-of-pocket expenses.

Pros and Cons of Liability Only Coverage

One of the major advantages of liability only coverage is the potential for lower premiums. Since the insurance doesn’t need to cover your own vehicle in the event of an accident you cause, the premiums are reduced. However, this comes with a significant risk—the potential for large out-of-pocket expenses if you’re involved in an at-fault accident. It might be time to switch from full coverage to liability only when your car loan is paid off, the vehicle’s value decreases significantly, and you have a robust emergency fund ready for vehicle replacement or repairs.

Making the Decision

Deciding whether liability only insurance is suitable for you involves a careful evaluation of your financial stability, vehicle value, personal risk tolerance, and the expected costs of insurance over time. For personalized advice and to explore how this applies to your situation, consider contacting a Green Brook Onboarding Advisor. We can provide tailored guidance to help you make the best insurance decision based on your specific circumstances.