Making the Switch to Liability Only

Car insurance is a necessary product for protecting you against large financial expenses if you are involved in a motor vehicle accident. It is also required by law in most states. Still, maintaining a car insurance policy can be costly. For this reason, you might be thinking of switching to a liability-only policy to save money on your auto insurance premiums. Before you make the switch to a liability-only policy, you should consider this decision carefully.

What is a Liability-Only Policy?

Auto insurance carriers typically package several coverages when offering you a policy. These coverages include liability, medical payments, uninsured motorist, comprehensive, and collision. A liability-only policy only provides bodily injury and property damage liability coverages.

Bodily injury liability pays for medical expenses incurred by other drivers and passengers if you cause an accident. These expenses might include costs for emergency room visits, hospital stays, and rehabilitative services. Bodily injury liability does not pay for any injuries you or your passengers sustain as a result of an accident you cause.

Property damage liability pays for damage you cause to another person's vehicle or property. If you cause an accident and damage or destroy someone else's car, this coverage will pay to repair or replace the car. Likewise, it will pay for damage to buildings, signs, fences, and other property you damage.

Like bodily injury liability, property damage liability does not provide any protection for your property. If you carry a liability-only policy and your vehicle is damaged in an accident for which you are found at fault, you will be responsible for your own car repairs. These costs would not be covered if you elect to drop collision coverage, which is designed to pay for your vehicle repairs even if you cause an accident.

Also, keep in mind that because a liability-only policy does not provide comprehensive coverage, you will not be covered if your vehicle is damaged or destroyed because of an event other than a motor vehicle accident. If your car catches fire, is stolen or vandalized, or is damaged by hail or falling objects, you will have to pay to replace or repair the car yourself.

When Does a Liability-Only Policy Make Sense?

It might make sense to switch to a liability-only policy if you own a vehicle with a low resale value. This is because the cost of maintaining comprehensive and collision might not be worth the limited coverage. Comprehensive and collision coverages only pay up to the resale value of your car minus your deductible. For example, suppose you own a car that is worth $2,000 and have a $500 deductible. If your car is deemed a total loss, the most you will receive is $1,500.

Keep in mind, though, that switching to a liability-only policy is typically a poor choice if you still owe money on your car loan. If you drop comprehensive and collision coverages, your lender might buy these coverages on your behalf and charge you for the premiums. This type of coverage, known as “forced place” coverage, is usually far more expensive than you would pay in the standard insurance market. If you bundle these kind of policies together with home insurance policies from Insurance Town for instance, you could end up getting a better deal.

By considering your options carefully, you can avoid assuming significant additional risk just to save a few dollars on your car insurance premiums.

Sam Fenton is a personal finance consultant. He enjoys sharing his research and knowledge online.

Car insurance is a necessary product for protecting you against large financial expenses if you are involved in a motor vehicle accident. It is also required by law in most states. Still, maintaining a car insurance policy can be costly. For this reason, you might be thinking of switching to a liability-only policy to save money on your auto insurance premiums. Before you make the switch to a liability-only policy, you should consider this decision carefully.

What is a Liability-Only Policy?

Auto insurance carriers typically package several coverages when offering you a policy. These coverages include liability, medical payments, uninsured motorist, comprehensive, and collision. A liability-only policy only provides bodily injury and property damage liability coverages.

Bodily injury liability pays for medical expenses incurred by other drivers and passengers if you cause an accident. These expenses might include costs for emergency room visits, hospital stays, and rehabilitative services. Bodily injury liability does not pay for any injuries you or your passengers sustain as a result of an accident you cause.

Property damage liability pays for damage you cause to another person's vehicle or property. If you cause an accident and damage or destroy someone else's car, this coverage will pay to repair or replace the car. Likewise, it will pay for damage to buildings, signs, fences, and other property you damage.

Like bodily injury liability, property damage liability does not provide any protection for your property. If you carry a liability-only policy and your vehicle is damaged in an accident for which you are found at fault, you will be responsible for your own car repairs. These costs would not be covered if you elect to drop collision coverage, which is designed to pay for your vehicle repairs even if you cause an accident.

Also, keep in mind that because a liability-only policy does not provide comprehensive coverage, you will not be covered if your vehicle is damaged or destroyed because of an event other than a motor vehicle accident. If your car catches fire, is stolen or vandalized, or is damaged by hail or falling objects, you will have to pay to replace or repair the car yourself.

When Does a Liability-Only Policy Make Sense?

It might make sense to switch to a liability-only policy if you own a vehicle with a low resale value. This is because the cost of maintaining comprehensive and collision might not be worth the limited coverage. Comprehensive and collision coverages only pay up to the resale value of your car minus your deductible. For example, suppose you own a car that is worth $2,000 and have a $500 deductible. If your car is deemed a total loss, the most you will receive is $1,500.

Keep in mind, though, that switching to a liability-only policy is typically a poor choice if you still owe money on your car loan. If you drop comprehensive and collision coverages, your lender might buy these coverages on your behalf and charge you for the premiums. This type of coverage, known as “forced place” coverage, is usually far more expensive than you would pay in the standard insurance market. If you bundle these kind of policies together with home insurance policies from Insurance Town for instance, you could end up getting a better deal.

By considering your options carefully, you can avoid assuming significant additional risk just to save a few dollars on your car insurance premiums.

Sam Fenton is a personal finance consultant. He enjoys sharing his research and knowledge online.