Having car insurance is both a legal requirement in most states and a way to keep everyone on the roads safer. There are an average of six million car accidents in the US every year, leading to around three million injuries. Car insurance exists to make sure the people and property damaged in these accidents are compensated for their recovery. It’s a monthly expense that all drivers must accept. But considering that the average driver is involved in an accident every 17.9 years, car insurance is also a protection that everyone benefits from.
What is Full Coverage Auto Insurance?
The term full coverage car insurance is a little misleading. Technically, there is no such thing as full coverage because all policies have limits and conditions placed on them. Typically, however, the term full coverage car insurance is applied to policies that include the following elements:
Insurance to cover damage done to another driver or their vehicle.
Insurance to cover damage done to your own vehicle not caused by a collision. For instance, if a tree falls on the vehicle.
Insurance to cover damage to your own vehicle caused by a collision with another vehicle or object.
For each area of coverage the insurer sets both deductibles and limits. A deductible is the amount you must pay out of pocket to have a claim covered. A limit is the maximum amount an insurer will pay to cover a claim.
According to the Insurance Information Institute, around 78 percent of drivers purchase comprehensive coverage and 73 percent purchase collision coverage. Not all drivers carry full coverage car insurance, but a majority carry it in some form.
What Does Full Coverage Car Insurance Cover?
The insurer determines the specific types of coverage that are included in a car insurance policy. It is important for motorists to carefully consider the types of coverage that are present and absent. If certain types of protections are particularly important to you, you must seek them out specifically. These are the types of coverage that may be included as part of a full coverage policy:
Bodily Injury and Property Damage Liability
This is the full title of basic “liability insurance.” Some form of this coverage is required in all states. If you are responsible for a collision, this type of insurance covers the cost of damage done to persons or property. Most states set mandatory minimum limits. If the amount of damage you cause exceeds those minimums and you are sued to recoup the difference, liability insurance may also cover parts of the legal defense.
Medical Expense Coverage
This type of coverage is designed to cover the medical expenses of anyone inside your vehicle who is injured in an accident. Terms and conditions vary by policy, but the goal is to offset the significant cost of medical care if you or one of your passengers requires formal treatment. Drivers with a quality health insurance plan may want to forego this form of coverage. Conversely, drivers concerned about the financial impact of major medical expenses may want to pay a monthly premium for the extra coverage.
Personal Injury Protection/First Party Benefits
First Party Benefits are any benefits paid out by the insurance company to the policyholder. Personal Injury Protection (PIP) is a form of this benefit. It covers portions of the cost of medical expenses related to an accident. Certain policies also cover lost wages. As with all types of coverage, the deductibles and limits are important to consider carefully to understand how much coverage is actually being offered.
Accidental Death Benefit
This type of coverage pays the family (or stated beneficiary) of a policyholder in the event that person dies in an auto accident. Without this benefit the cost of death expenses like a funeral may have to be paid out of pocket. This type of coverage can exist on its own, but in some policies a death benefit is included as part of the medical coverage or the PIP. For drivers with a quality life insurance policy, accidental death benefit coverage is likely not a priority.
Uninsured/Underinsured Motorist Bodily Injury Coverage
If you are involved in an accident caused by a driver who does not have liability insurance, the cost of medical care falls to you. This type of coverage helps drivers recoup medical costs when someone driving without legally required insurance or without enough insurance injures them.
Uninsured/Underinsured Motorist Property Damage Coverage
This type of coverage is basically identical to the previous type but covers property damage caused by a driver without adequate insurance. The only significant difference is that while bodily injury coverage applies after a hit-and-run accident, property damage coverage is only available when the offending driver stays at the scene of the accident.
Physical Damage Coverage
If damage is caused to your vehicle this type of coverage is meant to cover the cost. The cause of the damage is important, however. Some policies only cover damage related to a collision. Others only cover damage caused independently from a collision like theft, vandalism, or flood damage. Policyholders must confirm that the policy limits are enough to cover the value of their vehicle if it is entirely destroyed or lost.
Towing and Labor Coverage
The cost of towing is significant if you must transport your vehicle to a distant repair location. The cost of labor is even more significant if a vehicle needs major service. This type of coverage pays for these costs up to a certain limit. It may also be included as part of physical damage coverage. Be sure to check whether a policy covers the cost of parts as well. Otherwise, most, but not the entire repair bill is covered.
This type of coverage is similar to Towing and Labor coverage but covers additional services drivers may need on the road. Those include a jump-start, flat tire repair, lock opening, or fuel delivery. Drivers who log a lot of miles often carry some combination of towing and roadside assistance coverage to help insulate themselves from the uncertainties of the road.
If you must rent a vehicle because yours is being serviced this type of coverage pays back some or all of the cost. Rental reimbursement is subject to limits regarding the length of the rental or the overall cost. Some policies also require drivers to work with approved rental companies. This coverage typically does not apply when a driver rents a car electively.
Conditions, Limitation, Exclusions
Every car insurance policy outlines both what is covered and what is not covered. Certain conditions, limitations, and exclusions mean that coverage may be limited or absent entirely following certain types on incidents. It is important to understand these details carefully to avoid being left without coverage when it matters most.
It bears repeating that a full coverage auto policy may include all of these types of coverage or just a few. The more coverage you carry the higher the monthly premiums are. But the more coverage you carry the less you pay out of pocket following a collision. It is the responsibility of every driver to understand the risks and costs associated and seek out a policy that fits into his or her long-term budget.
Who Should Get It?
The car insurance market is full of policies, price points, and coverage options. This type of car insurance offers an elevated level of protection, but as a result the price is higher. That means it will not be the ideal option for everyone. Here are some of the drivers who should seriously consider paying the max for car insurance:
Car Insurance Minimum Requirements By State
Of course, you can add extra insurance coverage to your plan, but it is also important to note what you are legally responsible to carry depending on where you live.
|Coverage Requirement||Coverage Details||States|
|Liability||Generally pays another driver’s medical, vehicle repair, and other costs when the policyholder is the at-fault driver in an accident. It covers bodily injury per person and per accident and property damage.||49 states plus D.C., not including New Hampshire|
|Uninsured Motorist||Compensates policyholders when another driver who is at fault for the accident (1) has no auto liability insurance or (2) is a hit-and-run driver.||22 states: Connecticut, D.C., Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Vermont, Virginia, West Virginia, and Wisconsin.|
|Underinsured Motorist||Compensates a policyholder when the at-fault driver has an insufficient amount of auto liability insurance.||14 states: Connecticut, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oregon, South Dakota, Vermont, Virginia, and Wisconsin|
Before you commit to fully insuring your car or any other option you’re considering, make these final considerations
Full coverage offers comprehensive protection, but this does NOT mean that every cost is covered. Policies that include liability, collision, and comprehensive coverage may not include coverage for towing, medical expenses, uninsured drivers and more. It is the responsibility of the policyholder to understand the terms and limits and to add supplemental insurance as necessary.
Under certain circumstances you may be required to carry a lot of insurance coverage. For instance, if you have a lease agreement or an auto loan it may be a condition for you to carry full coverage for as long as you are making payments on the vehicle. This may also be the case if you put the vehicle up as collateral for a loan. Be sure to investigate the coverage requirements for both your state and your vehicle.
Even if you own a vehicle outright it could be worth it to carry full coverage. Typically, vehicles worth over $5,000 make it economically advantageous to cover against collisions and other accidents rather than liability alone. Conversely, if a vehicle is worth less than $5,000 the cost often outweighs the coverage.