What does liability only auto insurance cover?

Liability insurance is generally the requirement to meet the minimum guidelines set by state auto insurance law.  Depending on your situation, you may decide to opt for this minimum coverage to save money on your insurance premium.

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The reason to opt for liability only insurance is to save money on your premium. Depending on several factors, you may end up losing money in the long run by opting for minimal coverage on your automobile.

How do I decide if liability only makes sense?

The money you can save relates directly to how much your policy would be based on your particular circumstances. Here are some factors to consider:

If your driving record includes several traffic violations and car accidents, then your insurance premium is going to be higher than average. If this is the case, you have more to gain by opting for the minimum coverage.

The value of your vehicle will determine how much risk you have involved by not fully insuring your automobile. Anytime you drive your vehicle, you could damage your car to the point that it is not drivable and not financially feasible to repair.

The auto insurance company determines your insurance rates based on a risk-based analysis. Any data regarding your age, credit and driving history is fair game to determine if you are more likely to be involved in an accident that requires an insurance claim.

When making the decision whether to carry only liability insurance, you are also making a risk-based analysis by asking:

• Are the savings on your premium worth the extra risk?
• How much is the risk?

Liability insurance will generally cover the minimum state requirements. If there is a lien on your vehicle through a financial institution, you may be required to carry full coverage (collision and comprehensive) on your automobile. Banks look to protect their assets in the event that you get into an accident with the vehicle you have financed through their institution.

If you fail to comply with this insurance requirement, the bank may sign you up for insurance and send you a bill. If this is the case, you will likely pay significantly more than you would by obtaining your own policy.

Whether the bank obtains insurance for your vehicle or not, you are breaking the contract by not having insurance.

If you do not have a lien on your vehicle, you do have a decision whether or not to carry full coverage on your auto. The things to consider when making this decision will relate to your personal driving habits, who has access to the car, and if there are alternative methods of transportation in the event of an accident.

If your family has more than one vehicle that is insured, it may make financial sense to move to liabilityonly for one of the vehicles. The risk involved is based on how much the vehicle is worth and how often the vehicle is driven.

If you only drive the vehicle sparingly, there is less risk involved for dropping the insurance coverage to liability only. If this vehicle has a blue book value of several thousand dollars, it will make more sense to protect your asset.

There are circumstances that can’t be planned for when driving an automobile.No matter how confident you are in your driving abilities, it may still be impossible for you to miss hitting that deer that jumps out in front of you on the highway.

The same applies to avoiding many of the other drivers on the road while you are driving. If you cannot afford to lose your vehicle, then you cannot afford to drive without full coverage. The risk is too great for your particular situation.

What determines auto insurance rates?

The value of your automobile has a direct effect on how much your auto insurance premium will be. The more it costs the insurance company to pay you for your vehicle in the event of a total loss situation, the more it will cost you to insure that vehicle.

The more the vehicle is worth also directly relates to whether or not you should take the risk of not having full coverage on your auto.

Insurance companies will usually look back three years at driving history to determine risk. If you have several violations, more money can be saved by opting for liability only insurance.

Drivers with more traffic violations are more likely to be in an accident, which means it is a higher risk for you to not have full coverage on your vehicle.

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