Full coverage vs. liability only – what’s the best choice?
It is not an uncommon question in the insurance industry – I’ve paid off my car loan. Do I have to carry full coverage on my auto insurance policy?
The answer is no.
However – and there is always a however – making the decision to take an auto policy to liability only can present some challenges in the future.
The only insurance coverage that is required for vehicle owners by the State of Indiana is one that covers the driver’s financial responsibilities for injuries and/or damages sustained by others in an accident. This is commonly known as bodily injury and property damage liability.
This section of a policy provides financial resources to insured drivers in case of an at-fault accident, covering the losses of others. As an insurance benefit, the insured motorist pays a small amount of money known as the premium to use an insurance company’s larger assets in the event a loss. This allows the insured driver to meet the state’s financial responsibility requirements.
Full coverage comes into play when there is a loan or lease. Full coverage puts physical damage protections in place through comprehensive and collision deductibles and helps provide financial resources to repair or help replace a damaged vehicle. Auto financing companies require this coverage to help protect their loan or lease collateral, also known as your vehicle.
When a loan is paid off, full coverage is no longer required by any institution. Removing physical damage coverage can often significantly lower an auto policy premium. This is commonly known as PL/PD.
This also means that if there is any damage to the vehicle in the future, it may be solely up to the owner to pay for repairs.
Before removing that coverage, auto owners should consider what would happen if there was a significant loss to their vehicle. A lot of expenses can pop up even in a small fender-bender.
If a vehicle insured for liability only is damaged in a severe hailstorm, does the owner have the assets to repair the damages?
If a tree branch or other falling object breaks a windshield, does the owner have enough money to get it replaced?
If the vehicle is involved in an accident where the driver is at fault, are there resources available to repair it? Is there another vehicle available to drive if the damaged car goes into the shop or is determined to be inoperable?
Drivers in households that have multiple vehicles may not have to worry about losing access to a car if a liability-only insured vehicle is damaged in an accident, but drivers who have only the one vehicle at their disposal may not have that luxury.
I generally recommend those individuals – people who have just one vehicle – to keep full coverage in place so there may be some cash from the policy to repair it or help replace it.
As with any insurance situation, individuals are encouraged to meet with their insurance agents to discuss options when a loan gets paid off.
Alan T. Girton is a veteran agent with Indiana Farm Bureau Insurance. To learn more, visit https://www.infarmbureau.com/agents/Alan-Girton-Howard-Kokomo-IN