When to Buy Auto Insurance Liability Only Coverage

Auto insurance liability only coverage can make sense for drivers in certain circumstances. It is a legal requirement in most parts of the United States and getting caught without this type of protection in place can lead to a number of consequences, including loss of registration and/or driver’s license.

While liability coverage pays for injuries and damages sustained by the occupants of the other vehicle when an accident occurs, physical damage coverage protects the driver’s own vehicle. In the case of a new car which has an outstanding loan on it, the finance company will probably require the driver to keep full coverage (collision and comprehensive) in place until the car has been paid off in full.

Dropping the physical damage portion of the policy and limiting protection to auto insurance liability only is a good choice when the car is an older model which has little cash value. Physical damage insurance pays out based on the car’s cash value and at a certain point, it no longer makes sense to keep full coverage on a vehicle. The policyholder is paying the same amount in premiums each month for a level of protection which is continually decreasing with the value of the vehicle.

In that situation, the owner can get lower rates on his or her car insurance coverage by dropping the collision coverage and limiting the comprehensive part of the policy to fire and theft only.