Ask five people what “full coverage” car insurance means and you may get five different answers. Some think it covers everything that could possibly happen. Others think it just means “not the cheapest plan”. The truth sits between those views, and knowing it can save you from a nasty surprise.
What “full coverage” usually means
It is not a formal product that you will find on a policy document. It is a casual term for a combination of three coverages:
- Liability, which pays for injuries and damage you cause to other people. This is the part most states require.
- Collision, which helps repair or replace your car after a crash, whoever is at fault.
- Comprehensive, which covers non-crash damage such as theft, fire, hail, flooding, vandalism or hitting an animal.
If a policy has all three, people call it full coverage. If it only has liability, it is usually called minimum or liability-only coverage.
What full coverage does not cover
This is where the name misleads. Even a policy with all three coverages may leave you paying for some things. Typical gaps include:
- Your deductible, the amount you pay before the insurer pays.
- Damage above your liability limits if you cause a serious accident.
- Rental car costs while yours is repaired, unless you add rental reimbursement.
- Towing and roadside help, unless you add it.
- The difference between what you owe on a loan and what the car is worth if it is totaled, which is covered by gap insurance.
- Wear and tear, mechanical breakdowns and routine maintenance.
Our guide to car insurance terms explains each of these in plain language.
When you may be required to carry it
If you finance or lease your car, the lender will almost always require collision and comprehensive coverage, usually with a maximum deductible. The car is their collateral, and they want it protected until you have paid it off. In this case the question of whether it is worth it is already settled, so the real task is shopping for the best price.
When full coverage makes sense
- Your car is fairly new or has a high market value.
- You could not afford to repair or replace it from savings.
- You park on the street, drive in heavy traffic or live in an area with hail, flooding or high theft rates.
- You rely on the car for work and cannot be without it.
When it may not be worth it
For an older car with a low market value, collision and comprehensive can cost more over time than they could ever pay out. Remember that insurers pay the actual cash value of a car, which is what it was worth just before the loss, not what you paid and not what it would cost to buy a similar car today. If your car is worth $3,000 and you have a $1,000 deductible, the most you could ever receive is $2,000.
A common rule of thumb is to think about dropping collision and comprehensive when their yearly cost reaches about 10% of the car’s value. That is only a rough guide. The right answer depends on whether you could replace the car from your own savings.
A simple way to decide
Ask yourself three questions. First, what is my car worth today? You can check a pricing guide such as Kelley Blue Book or Edmunds. Second, how much am I paying each year for collision and comprehensive? Your policy documents or insurer will tell you. Third, if my car were totaled tomorrow, could I replace it without borrowing? If the answer to the third question is no, the coverage is protecting you from a serious financial hit, whatever the price.
What about the deductible?
Full coverage always comes with deductibles on collision and comprehensive. A lower deductible means a higher premium, and a higher deductible means more out of pocket after a claim. Many people forget that the policy only pays once the deductible has been met, so a $1,000 deductible on a $1,800 repair means the insurer pays $800. Pick an amount you could actually find in a hurry, since an unaffordable deductible can leave a repair undone.
Do not cut the wrong coverage
If you want to save money, resist the temptation to cut liability first. Liability protects your savings and future income if you hurt someone, and the cost of a serious claim can be far larger than the car. It is better to raise your deductible or drop an optional extra than to lower your liability limits. Our article on how to choose a deductible shows how to balance the numbers.
Ways to lower the cost of full coverage
- Compare quotes from several insurers using the same limits and deductibles.
- Ask about auto insurance discounts, such as bundling, low mileage and safe driving.
- Choose a deductible you can comfortably afford.
- Review the policy each year and remove extras that you do not use.
Full coverage is worth it for many drivers, especially those with a loan or a newer car. For others, a lighter policy may make more sense. Whichever fits you, it helps to see real prices, so compare quotes with different coverage levels.
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This article is for general information only and is not insurance, legal or financial advice. Coverage, rules and prices vary by insurer and state.