Full Coverage vs. Liability Only Auto Insurance: What's the Difference?

When shopping for auto insurance, one of the most important decisions you'll make is choosing between full coverage and liability-only insurance. This choice significantly impacts both your premium and your level of protection. At TCDS Insurance Agency, we want to help you understand the differences so you can make an informed decision that's right for your situation.

What Is Liability-Only Insurance?

Liability-only insurance is the minimum coverage required by law in Alabama. It includes two types of coverage:

Bodily Injury Liability: Pays for injuries you cause to other people in an accident. Alabama requires minimum limits of $25,000 per person and $50,000 per accident.

Property Damage Liability: Pays for damage you cause to other people's property (typically their vehicles) in an accident. Alabama requires a minimum of $25,000 per accident.

This is often referred to as 25/50/25 coverage. Liability insurance protects other people from your mistakes, but it doesn't protect you or your vehicle.

What Is Full Coverage Insurance?

"Full coverage" isn't an official insurance term, but it's commonly used to describe a policy that includes liability coverage plus additional coverages that protect your own vehicle:

Collision Coverage: Pays for damage to your vehicle resulting from a collision with another vehicle or object, regardless of who's at fault.

Comprehensive Coverage: Pays for damage to your vehicle from non-collision events like theft, vandalism, fire, hail, hitting an animal, or falling objects.

When people say they have "full coverage," they typically mean they have liability, collision, and comprehensive coverage.

Key Differences Between Full Coverage and Liability Only

What's Covered

Liability Only:

Injuries and property damage you cause to others
Legal defense if you're sued after an accident
Does NOT cover damage to your own vehicle
Does NOT cover your medical expenses
Does NOT cover theft of your vehicle

Full Coverage:

Everything liability covers, PLUS:
Damage to your vehicle from accidents (collision)
Damage to your vehicle from non-collision events (comprehensive)
Theft of your vehicle
Often includes additional coverages like rental car reimbursement and roadside assistance

Cost Difference

Liability-only insurance is significantly cheaper than full coverage. In Alabama, you might pay:

Liability only: $500-$700 per year ($42-$58 per month)
Full coverage: $1,800-$2,200 per year ($150-$183 per month)

The exact cost depends on factors like your age, driving record, location, and the value of your vehicle.

When Each Type Makes Sense

Liability Only Makes Sense When:

Your vehicle is older and has low market value (typically less than $3,000-$4,000)
You can afford to replace your vehicle out of pocket if it's damaged or stolen
You want to minimize your insurance costs
Your vehicle is paid off (not financed or leased)

Full Coverage Makes Sense When:

Your vehicle is newer or has significant value
You're financing or leasing your vehicle (lenders require full coverage)
You can't afford to replace your vehicle out of pocket
You want maximum protection and peace of mind

Understanding the Components of Full Coverage

Collision Coverage

Collision coverage pays for damage to your vehicle when you collide with another vehicle or object, such as a tree, guardrail, or building. It covers your vehicle regardless of who was at fault in the accident.

Example: You're driving in icy conditions and slide into a guardrail. Your collision coverage will pay to repair your vehicle, minus your deductible.

Typical deductibles: $500, $1,000, or $2,500. Higher deductibles mean lower premiums.

Comprehensive Coverage

Comprehensive coverage (sometimes called "other than collision") covers damage to your vehicle from events other than collisions. This includes:

Theft
Vandalism
Fire
Hail or storm damage
Falling objects (like tree branches)
Hitting an animal
Floods (though flood damage may have limitations)
Glass breakage

Example: A severe hailstorm damages your vehicle's hood, roof, and windows. Your comprehensive coverage will pay for repairs, minus your deductible.

Typical deductibles: $250, $500, or $1,000.

Additional Coverages to Consider

Beyond the basic liability, collision, and comprehensive coverages, there are several optional coverages that can enhance your protection:

Uninsured/Underinsured Motorist Coverage

Protects you if you're hit by a driver who doesn't have insurance or doesn't have enough insurance to cover your damages. We strongly recommend this coverage for all Alabama drivers.

Medical Payments Coverage

Pays for medical expenses for you and your passengers after an accident, regardless of fault. This coverage can help pay deductibles and co-pays for your health insurance.

Rental Car Reimbursement

Provides a daily allowance for a rental vehicle while your car is being repaired after a covered loss. Typical limits are $30-$50 per day for up to 30 days.

Roadside Assistance

Covers towing, jump-starts, flat tire changes, lockout service, and fuel delivery. This typically costs just a few dollars per month.

Gap Insurance

If you're financing or leasing a vehicle, gap insurance covers the difference between your vehicle's actual cash value and what you still owe on your loan if the vehicle is totaled.

How to Decide What's Right for You

Assess Your Vehicle's Value

Use resources like Kelley Blue Book or Edmunds to determine your vehicle's current market value. If your vehicle is worth less than $3,000-$4,000, the cost of collision and comprehensive coverage may not be worth it.

The math: If your vehicle is worth $3,000 and you're paying $800 per year for collision and comprehensive coverage with a $1,000 deductible, the maximum you could receive from a claim is $2,000 ($3,000 value minus $1,000 deductible). After just 2.5 years of premiums, you've paid more in premiums than you could ever receive.

Consider Your Financial Situation

Can you afford to replace your vehicle out of pocket if it's damaged or stolen? If not, full coverage provides important financial protection.

Check Lender Requirements

If your vehicle is financed or leased, your lender will require you to maintain full coverage until the loan is paid off. You don't have a choice in this situation.

Evaluate Your Risk Tolerance

Some people are comfortable taking on more risk to save money on premiums, while others prefer the peace of mind that comes with comprehensive protection. There's no right or wrong answer—it depends on your personal comfort level.

Factor in Your Driving Habits

If you drive frequently, especially in heavy traffic or challenging conditions, you may be at higher risk for accidents. Full coverage may be worth the extra cost.

The Middle Ground: Adjusting Your Deductibles

If you want to keep full coverage but reduce your premiums, consider raising your deductibles. Increasing your deductible from $500 to $1,000 can lower your premium by 15-30 percent.

Just make sure you have enough savings to cover the higher deductible if you need to file a claim.

Common Misconceptions About Full Coverage

Misconception 1: "Full Coverage Covers Everything"

Despite its name, "full coverage" doesn't cover every possible situation. For example, it typically doesn't cover:

Mechanical breakdowns (you need mechanical breakdown insurance for this)
Wear and tear or maintenance
Damage from racing or intentional acts
Using your vehicle for commercial purposes without proper coverage

Misconception 2: "I Have to Buy Full Coverage from the Same Company That Financed My Car"

Your lender can require you to have full coverage, but they can't require you to buy it from a specific insurance company. You're free to shop around for the best rate.

Misconception 3: "Full Coverage Will Pay to Replace My Car with a Brand New One"

Full coverage pays the actual cash value of your vehicle at the time of the loss, which accounts for depreciation. If you want coverage that pays to replace your vehicle with a brand new one, you need new car replacement coverage.

When to Switch from Full Coverage to Liability Only

As your vehicle ages and depreciates, there may come a point when it makes sense to drop collision and comprehensive coverage. Consider making the switch when:

Your vehicle's value drops below $3,000-$4,000
The annual cost of collision and comprehensive coverage exceeds 10% of your vehicle's value
You have sufficient savings to replace your vehicle if necessary
Your vehicle is paid off

Before making the switch, discuss it with your agent at TCDS Insurance Agency. We can help you evaluate whether it's the right decision for your situation.

How TCDS Insurance Agency Can Help

Choosing between full coverage and liability-only insurance is an important decision that depends on your unique circumstances. At TCDS Insurance Agency, we'll help you:

Assess your vehicle's value and your coverage needs
Compare the costs and benefits of different coverage options
Find the right balance between protection and affordability
Identify discounts that can make full coverage more affordable

We work with multiple insurance carriers, which allows us to shop your coverage and find you the best combination of price and protection.

Birmingham Office: [Phone Number]
Pelham Office: [Phone Number]
Cullman Office: [Phone Number]

The Bottom Line

There's no one-size-fits-all answer to whether you should have full coverage or liability-only insurance. The right choice depends on your vehicle's value, your financial situation, your risk tolerance, and whether you're financing your vehicle.

At TCDS Insurance Agency, we're here to help you make an informed decision that provides the right level of protection for your needs and budget. Contact us today to discuss your options.

Full Coverage vs. Liability Only Auto Insurance