When it comes to car insurance, one of the biggest decisions to make is whether to purchase liability insurance or spring more bucks for a comprehensive policy. Unfortunately, there is no clear-cut answer to this question. The true answer? “It depends.” There are several factors to consider. But first, let’s work through some of the vocabulary that’s thrown around in the world of car insurance so there’s no confusion.
- Liability Insurance- The most basic, and least expensive, type of insurance and is required by law for drivers in most states. This type of insurance will pay for damage to people or property that you cause while driving. Liability insurance will not pay for damage done to you or your vehicle.
- Liability Insurance- Collision Insurance- Covers damage done to your vehicle during a collision.
- Liability Insurance- Comprehensive Insurance – Pays for damage caused by non-collision events, such as floods, vandalism, etc.
- Liability Insurance- Premium – Your insurance bill, or how much you pay the insurance company for your coverage.
- Liability Insurance- Deductible – The amount of out-of-pocket expenses you will be responsible for in the event of an accident. Typically, policies with a lower deductible have more expensive premiums while cheap car insurance comes with higher deductibles.
WHAT DO YOU DRIVE?
It’s important to decide whether or not you’ll benefit from the extra expense of a comprehensive policy. The age and condition of your vehicle directly determines the cost of your policy, so let’s check out a few different scenarios.
- If you own a newer, more expensive vehicle, you’ll most likely want to pay the higher premiums for comprehensive coverage. If you owe $40,000 on a car loan and you were hit by an uninsured motorist, no one will pay for your car if you only have liability coverage.
- If you own an older car that’s paid off and isn’t worth very much, an argument could be made that liability coverage is all you need. For example, if you own an old pickup truck that’s only worth about $2,000, it may not be worth it to pay the extra money each month for a comprehensive policy.
WHAT’S YOUR CASH SITUATION?
- Your personal financial situation is also an important factor to consider when deciding between liability or comprehensive coverage.
- If you own the old pickup that’s worth $2,000, do you have enough cash on hand to replace it? If so, a liability policy may be a good option and will save you money on your premiums.
- If you’re living paycheck to paycheck, it might be worth it to get the comprehensive policy and have peace of mind knowing you’re covered in case something happens. Keep in mind that cheap car insurance usually has the least amount of coverage. Choose a policy that makes you feel comfortable with the financial responsibilities you would have in the event of an accident.