What is a full coverage policy, and is it worth it?
Given that a full coverage insurance policy is two and a half times as expensive as a liability-only policy, you’ll want to make sure the extra cost is worth it.
Full coverage auto policies typically include comprehensive and collision coverage in addition to the minimum coverage required by your state, such as liability coverage.
Collision and comprehensive coverage protect your vehicle against physical damage, whereas liability coverage protects other drivers’ vehicles.
You should start to consider dropping your full coverage policy with comprehensive and collision insurance when you can reasonably afford to replace your car if you have to.
The exact point at which this occurs depends on your financial situation and comfort with risk. As a rule of thumb, you should consider dropping full coverage when the value of your car is between four and six times the cost to add comprehensive and collision coverage. That tends to be when your car is between 8 and 12 years old and worth approximately $5,000-$10,000.
What is a full coverage policy?
The most common understanding of a full coverage policy is one that includes comprehensive and collision insurance. These coverages are optional, as state laws do not require them as part of an auto insurance policy. They may be required if you have a car loan or lease.
Comprehensive insurance covers damage to your vehicle resulting from so-called “acts of God,” such as storm damage, or damage that’s not strictly related to driving. This includes but is not limited to:
- Damage caused by weather, including hail or falling trees
- Vandalism or theft
- Impact with animals on the road
Collision insurance covers damage after your vehicle is involved in a crash with either another vehicle or a fixed structure, such as a fence, mailbox or pole. This could include:
- Collision with another car
- Crashing into stationary objects
Collision and comprehensive insurance both have deductibles associated with their coverage. A deductible is how much you have to pay before your insurance starts covering damage to your vehicle. To use a simplified example, if your $5,000 car is totaled and you have a deductible of $1,000, your insurer will send you $4,000 to cover the cost of replacement. You will have to pay the remaining $1,000 out of pocket.
What other coverages could be included in a full coverage policy?
Sometimes when an insurer uses the term full coverage, it may be referring to a policy with the full suite of available coverages. In addition to liability, comprehensive and collision coverage, this could include:
- Uninsured motorist coverage: Covers you for bodily injury and property damage if another driver is at fault for an accident and that driver does not have car insurance. This coverage may be required in some states.
- Underinsured motorist coverage: Reimburses expenses from an accident where an at-fault driver does have car insurance but their insurance limits are not high enough to cover your costs.
- Personal injury protection (PIP): Covers the costs of injuries you sustain in a crash, regardless of fault. It may be required in “no-fault” states.
Depending on which state you live in, you might be required to purchase those coverages.
Is a full coverage policy worth it?
Because comprehensive and collision protect the value of your car, it’s worth buying a full coverage policy if your car is still valuable enough that you can’t readily pay for repairs. However, full coverage becomes a worse deal over time, as the price of full coverage insurance drops more slowly than the value of an aging car. We recommend dropping full coverage when your car’s value (minus the deductible) is four to six times what you’ll pay for a year of coverage:
Using the average cost of an Erie full coverage policy as a sample, here’s an example in which we’d consider dropping full coverage:
|Current value of your car [B]||$5,000|
|Collision/comprehensive deductible [C]||$500|
|Years of full coverage it would take to pay to replace your car [(B-C)/A]||5.14|
The smaller the payout you get if your car is destroyed, the lower the value of full coverage insurance. If you are risk-averse, you might wait until the value of your car is two or three times a year’s premium; if you are comfortable with risk or have a healthy emergency fund, you might drop full coverage once your car’s value is six or seven times what you pay per year to protect your car.
If you have a less valuable car, the extra cost of full coverage won’t actually pay off if you’re in an accident. You are better off saving the money and putting it toward repairs or a new vehicle.
Several factors can affect the math that determines when it makes sense to have full coverage.
- The cost of adding full coverage to your car may be much cheaper or more expensive.
- You can alter your deductible, which affects both the price of your policy and the payout of a claim.
- The value of your car may vary widely, though the value will decline each year.
How to get cheap full coverage insurance
In the short term, there are two ways to get cheaper full coverage car insurance: shop around and reduce coverages.
Shop around to see if different insurance companies give you different full coverage rates, with the potential to get the same coverage for a lower price.
Reduce coverage you don’t need to lower your rates. You’ll get less protection from the insurer, but the trade-off may be worth it, depending on your personal situation.
How to shop around for full coverage insurance
The goal of shopping around is to find equivalent insurance protection for a lower price. When comparing policies with different insurers, you should make sure that you:
- Select consistent liability limits. If you shop with an insurer and select $25,000 in bodily injury liability per person, $50,000 in bodily injury liability per accident and $25,000 in property damage liability per accident, you should select the same with comparison insurers.
- Choose the same deductible for comprehensive and collision insurance. Increasing your deductible lowers the cost of your policy and vice versa.
- Set the same coverage limits for all other coverages, such as uninsured/underinsured motorist coverage, personal injury protection and more. Additional protections cost more money.
If you follow these steps, you’ll find that different insurers will offer the same coverage for varying prices. The best and cheapest car insurance company for your neighbor may not be the same as the best one for you.
How reducing your coverages can lower your insurance premium
You can also lower your insurance premium by reducing your coverage. For example, you can:
- Skip comprehensive and collision insurance. In this case, you’ll no longer have a full coverage policy. But the savings will be worth it if you have a low-value car.
- Increase your deductible. If you increase your deductible, you’ll lower the amount your insurer will pay you for a claim. In exchange, you’ll pay a lower premium.
- Lower limits for liability and other coverages. If you reduce your liability limits, you’re reducing the protection offered by your insurer and risking not having enough coverage to pay for the total costs after an at-fault accident.
However, keep in mind that there is risk associated with decreasing coverages. Although sometimes it may make sense to drop additional coverages that provide unnecessary protection, you also risk insufficient coverage after an expensive accident.
Increasing your deductible increases your out-of-pocket costs when making a claim, so you risk paying more from your savings after an accident. And decreasing liability limits could expose you to unexpected costs if your insurance isn’t enough to cover a major accident.
Frequently asked questions
What does full coverage car insurance cover?
Full coverage policies typically include more liability coverage than your state’s minimum requirements, plus collision and comprehensive coverage. They may also include uninsured/underinsured motorist coverage and personal injury protection in some states. But the definition of full coverage varies by insurer. Check your state’s requirements and your quote to make sure you’re covered for what you expect.
Do I need full coverage on a financed car?
Yes, most lenders require you to have a full coverage policy with collision and comprehensive if you have a car loan. Once you pay off your loan, you’re free to decide if you still need a full coverage policy.
Does full coverage car insurance replace your car?
If you cause an accident, your collision coverage should cover the full repair costs for your car or pay out the current value if it’s totaled. If another driver damages your car in an accident, the other driver’s liability coverage would pay for repairs instead.
What’s the average cost of full coverage car insurance?
Full coverage car insurance costs $2,058 a year on average, or $171 a month. But some drivers can find rates as cheap as $109 a month from companies like State Farm.