When should I switch to liability only car insurance?

To switch to liability only car insurance, you must have a vehicle that is completely paid off and, ideally, has a low Kelley Blue Book value.

You should also only opt for liability only coverage as a last resort because you simply cannot afford other coverage.

Knowing when you should switch to liability only policy may seem rather complicated. You need to be well aware of the risks you are taking by only carrying liability insurance coverage.

You need to have investigated other options to help you save money. In addition, your car must be paid for because lien holders will not let you drop full coverage.

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What are the different parts of an insurance policy?

There are two primary parts of an auto insurance policy and several secondary coverages available. Some of these types are going to be optional, but depending on your vehicle, it may be recommended that you have additional coverage on top of state mandated requirements.

Liability pays for the repair or replacement of the other driver’s car if you cause an automobile accident.

This portion also pays the medical bills and lost wages for all the occupants of the other car.

Comprehensive and collision are actually two separate entities but are usually sold together. Collision covers the costs to repair or replace your car if you cause an accident.

If the other driver is at fault, their liability would cover the damage. Comprehensive covers damage caused by events other than a traffic accident, like fire, flood, hail, etc. These will carry a deductible.

The secondary coverages are things like uninsured motorist and medical payments.

Uninsured motorist insurance pays for your damages if an uninsured motorist causes an accident with your car. Since they don’t have insurance, the likelihood of getting money from them is slim. Secondary coverage covers this circumstance.

Read more: Compare Primary vs. Secondary Car Insurance: Rates, Discounts, & Requirements

Medical payments and PIP, or personal injury protection, both cover the medical expenses for everyone in your car if you cause an accident. PIP covers a bit more, like lost wages and funeral expenses. Usually, you cannot have both on a policy; it’s an either/or choice.

You can also choose extras for your policy like towing and rental car reimbursement. These optional riders usually tack on only a few extra dollars a year.

There is a benefit in having any additional type of coverage included with your policy, especially if you have an older vehicle or live in a place that sees a lot of traffic. However, if you’re looking to save money, minimizing your coverage policy could be a good way to save.

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Risks of Switching To Liability Only Policy

Switching to liability only car insurance is a big decision. It means that you will be taking on more of the financial risk associated with accidents.

If you were to have an at-fault accident you would have to pay for repairs or replacement of your car out of pocket.

Even worse, if you have an accident where you are not at fault but it is a hit and run or the driver has no insurance, you would still be stuck taking care of the damages yourself.

In addition, with liability coverage only, any medical problems relating to a car accident are yours to take care of. If you are struggling to afford car insurance rates then you may find that the cost of dealing with an accident is out of your budget too.

Things to Do Before Switching

Before switching to liability only car insurance, take the time to check out all the options for lowering the cost of your annual premiums. Car insurance companies take a variety of factors into consideration when setting rates.

Rates can be further reduced with certain discounts that you may be eligible for depending on the insurance company you check with.

You will be eligible for lower insurance premiums if:

• You have a good driving record
• You have taken driver training courses
• You have home and car insurance with the same company
• You drive your car a limited number of miles annually
• You have factory installed anti-theft and safety devices on your car
• All drivers are over a certain age
• You live in a certain area

Discounts can be earned simply because you are a member of a certain group. Ask insurers directly to be sure you have all the applicable discounts.

You may also want to look at the cost of keeping your full coverage but increasing the deductibles on your collision and comprehensive coverage.

This is a good method of saving money on insurance when your vehicle is still financed and you can’t drop full coverage. Therefore if your vehicle’s value is worth it, investigate this option.

Consider retaining more than liability coverage on your car.

Even if you are a great driver, there is always the risk that you can be the victim of an accident at the hands of an uninsured or underinsured driver.

If you carry uninsured/underinsured motorist coverage, it gives you protection if you are the victim of hit and run or an accident with an uninsured/underinsured driver.

How much insurance do I have to have?

Every state requires that you are financially responsible for damage you cause to another driver and his vehicle. In 49 states, this means you must carry liability insurance. The minimum amount varies by state.

To check what your state’s minimum liability requirement is, see Edmund’s article.

In addition to liability, some states require that every driver also buy uninsured motorist protection.

A few states require that drivers also carry PIP as part of their car insurance. Those states are: Colorado, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, and Utah.

If you are still paying off an automobile loan, the lending institution will require you to carry comprehensive and collision throughout the lifetime of the loan. Failure to do so is cause for the car to be repossessed.

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Purchasing Liability Only Car Insurance

If you decide to opt for car insurance with liability only, be sure that you have enough coverage. Many people choose to just carry the state-mandated limits, which are always very low.

Instead choose at least $100,000 bodily injury coverage per person, $300,000 per person and $100,000 property damage coverage. These are the suggested realistic limits that most insurance professionals advise you to carry.

Case Studies: When should I switch to liability only car insurance?

Case Study 1: Assessing Vehicle Value

Sarah owned a car that was fully paid off and had a low Kelley Blue Book value. She evaluated her insurance needs and decided to switch to liability-only coverage. By eliminating comprehensive and collision coverage, Sarah was able to reduce her insurance costs while still meeting the state’s financial responsibility requirements.

This case study emphasizes the importance of considering the value of the insured vehicle when deciding to switch to liability-only car insurance.

Case Study 2: Understanding Financial Risks

Mark was looking for ways to save on his car insurance premiums. He researched the risks associated with switching to liability-only coverage and realized the financial implications. Mark decided to maintain full coverage insurance because he wanted to protect himself against the potential costs of at-fault accidents and uninsured drivers.

Case Study 3: Exploring Cost-Reducing Options

Emily was struggling to afford her car insurance rates and wanted to explore options to lower her premiums. Before switching to liability-only coverage, she took the time to investigate other methods of cost reduction.

Emily discovered that she could increase the deductibles on her collision and comprehensive coverage, which would lower her premiums while still maintaining comprehensive protection.

The Bottom Line

By shopping around, you should be able to find very affordable car insurance options. In fact, everyone with car insurance should make it a habit of shopping around periodically and comparing and contrasting the available options for them in car insurance.

It makes financial sense to keep your car insurance policy within your budget, so having a variety of auto insurance coverage may not make the most sense depending on your situation. However, if you can afford to keep more than the minimum limits, it may be best to ask your insurance company what limits you should have based on your vehicle.

Should you require liability only, make sure that you are well protected in other regards.

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