Do I Need Full Coverage Car Insurance?
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Full coverage is a general term for a car insurance policy that includes liability, comprehensive and collision coverage, along with other coverage types required in your state. You will most likely need full coverage car insurance to take out a loan for your car.
Keep reading to learn what is covered by a full coverage car insurance policy and whether it’s required for you.
Do I Need Full Coverage Car Insurance?
Full coverage auto insurance is not required by law in any state, but your lender will likely require you to have it if you are financing or leasing your car. Until you pay off your loan, your lender has a financial interest in your car, which full coverage helps to protect by insuring your car against a wide array of potential damages.
Keeping full coverage is probably a good idea if the following scenarios apply to you:
- You have a teenage driver on your policy: Collision coverage in particular is important for young, inexperienced drivers since they are more likely to cause car accidents than experienced drivers.
- You live in an area with high rates of crime, extreme weather, etc.: Comprehensive insurance covers damage from hail, windstorms, theft, vandalism and more, so it may be worth keeping if you are prone to these perils.
- Your car’s value greatly exceeds the cost of full coverage. If you have a full coverage policy and lose your car, your insurer will generally pay you what the car is worth. As a result, the more valuable your car is, the higher your insurance payout will be.
However, as your car gets older and decreases in value, there may come a time when you should drop full coverage. When deciding if comprehensive and collision coverage are worth keeping, you should consider whether the cost of your premium is worth the potential payout if your car gets totaled.
In general, it’s recommended that you consider cutting comprehensive and/or collision coverage if the cost of their premiums is more than 10 times the value of your car. Using an online resource like Kelley Blue Book can help you calculate how much your car is worth.
How Does Full Coverage Car Insurance Work?
If you have full coverage car insurance and your car is totaled or stolen, then your insurance company will pay you the car’s actual cash value (ACV) minus your deductible. The ACV is the value of your car when considering depreciation factors like age or wear and tear.
You may be able to upgrade your policy in order to receive the replacement cost value (RCV) instead, but you will have to pay a higher premium to do so. The RCV doesn’t take depreciation factors into account, meaning your payout would simply be the cost of buying a vehicle similar to the one you lost.
Your deductible is the amount you have to pay out of pocket before your insurance company will give any money toward covered losses. For example, if you have a $500 deductible for collision coverage and you cause $5,000 worth of damage to your car in an accident, then your insurance company would contribute $4,500.
What Does Full Coverage Car Insurance Cover?
There is no universal definition for full coverage, but full coverage policies typically include comprehensive and collision coverage plus the minimum requirements for your state. As a result, these policies can usually pay for medical bills and car repairs for yourself and others after several different kinds of incidents.
Depending on where you live, a full coverage policy might include the following state-mandated types of car insurance.
Bodily Injury Liability
If you were the at-fault driver, pays for another person’s medical bills, lost wages and funeral expenses plus legal fees if they sue you
You hit a pedestrian with your car and break their leg
All states but FL, NH and VA
Property Damage Liability
Pays for repairs to another person’s car, home or belongings if you crash into them plus repairs to any public property you crash into
You run over your neighbor’s mailbox while backing out of your driveway
All states but NH and VA
Uninsured Motorist (UM)
Pays for your medical expenses and car repairs if you are hit by someone who doesn’t have car insurance or if you can’t identify the driver after a hit-and-run
Someone without auto insurance runs a red light and crashes into the side of your car
CT, DC, IL, KS, ME, MD, MA, MN, MO, NE, NJ, NY, NC, ND, OR, SC, SD, VT, WV and WI
Underinsured Motorist (UIM)
Covers the difference if you are struck by a driver who doesn’t have enough insurance to fully pay for your medical expenses or car repairs
A driver with $5,000 worth of property damage liability coverage deals $7,000 worth of damage to your car
CT, IL, KS, ME, MD, MN, NE, NJ, ND, SD and VT
Personal Injury Protection (PIP)
Pays for your medical bills, lost wages and funeral expenses if you are at fault for the accident
You get whiplash after crashing into another vehicle and need to take two weeks off work
DE, FL, HI, KS, MD, MA, MI, MN, NJ, NY, ND, OR, PA and UT
Medical Payments (Medpay)
Pays for your medical bills and funeral expenses if you are at fault for the accident but doesn’t cover lost wages
You are rushed to the emergency room after a car crash
In addition, full coverage generally includes the two types of physical damage coverage.
Collision coverage pays for repairs to your vehicle regardless of who was at fault for the accident. For example, collision coverage would kick in if you missed a stop sign and drove into another car or if you crashed into a highway guardrail.
Comprehensive coverage pays for repairs to your car after unexpected perils like fire, hail, vandalism and theft. For example, comprehensive coverage would cover the damage an intruder caused in the process of stealing your car battery.
What Isn’t Covered By Full Coverage Car Insurance?
Even if you have full coverage, your insurance company won’t cover every possible thing that could go wrong with your vehicle. Common car insurance exclusions include:
- Intentional damages: Purposefully damaging your car to collect an insurance payout is considered fraud and could result in the cancellation of your policy.
- Losses exceeding policy limits: Car insurance policies come with a limit on the total amount of money you can receive for a covered loss. For example, if you have a $25,000 limit for your personal property liability coverage and cause $30,000 worth of damage in an accident, then you would have to pay your deductible plus the last $5,000 out of pocket.
- Outstanding loans: If your car gets totaled and is worth less than the outstanding balance on your loan, then you will have to cover the difference out of pocket unless you have purchased gap insurance.
- Rental cars: Unless you add a rental car reimbursement endorsement, your full coverage policy likely won’t pay for you to rent a car while your main vehicle is being repaired.
- Stolen property: Your car insurance won’t cover items stolen from your car, although your homeowners insurance most likely will.
- Routine maintenance: You will have to pay out of pocket for general maintenance costs like getting your oil changed or your tires rotated.
- Roadside assistance: If your car breaks down, your insurance will not cover tows, jumpstarts, locksmithing services or fuel delivery unless you have added a roadside assistance plan.
- Commercial use: Your personal car insurance policy may not cover damages from an accident if you were using your car for a business purpose. For example, you may need a separate commercial auto insurance policy to be covered while delivering materials for your construction job. Similarly, you may need to purchase rideshare insurance if you work for a company like Uber or Lyft.
- Dangerous activities: You might not be covered for damages caused during high-risk activities like racing or off-roading.
How Much Does Full Coverage Car Insurance Cost?
It cost $1,403 a year to insure a medium sedan with full coverage in 2021. Naturally, a full coverage policy will have a higher annual premium than a liability-only policy, which averaged $631.19 in 2020. But by paying a higher premium, you secure higher coverage limits and physical damage protections for yourself.
How much full coverage car insurance costs varies from state to state since each state has its own requirements for how much car insurance drivers must have. In addition, premiums are highly personalized because insurance companies evaluate the risk of insuring each individual. Some of the factors that can influence the price of your car insurance include your age and driving history, the model of your car and how many drivers are covered under your policy.
How Can I Get the Cheapest Full Coverage Car Insurance?
When looking for the right full coverage policy, you can take the following steps to save money on car insurance:
- Shop around: Car insurance companies use their own formulas to calculate insurance premiums and individual companies weigh certain factors differently than others as a result. Using an insurance marketplace like SmartFinancial can help you find the company that will provide the best full coverage rate for your circumstances.
- Bundle policies: Many insurance companies offer discounted rates if you purchase multiple insurance products from them. For example, bundling your home, auto and life insurance policies may result in you paying less than if you purchased them all individually.
- Look for discounts: Your insurer may also provide discounts for other reasons such as driving safely, adding multiple cars to your policy or installing anti-theft devices.
- Lower your limits: If you lower your coverage limits, your insurance policy will not be responsible for paying as much toward covered losses. While this would provide you with less coverage, it would also result in you paying a lower premium.
- Raise your deductible: The higher your deductible is, the less money your insurance company will have to pay whenever there is an accident. As a result, higher deductibles generally correspond with lower premiums.