What Is Full Coverage Car Insurance | How It Works Explained

Full coverage car insurance usually refers to an auto insurance package that includes collision, comprehensive, and liability coverage. However, there is no standard definition of “full coverage car insurance,” therefore you cannot obtain a policy using this word.

Indeed, what constitutes full coverage car insurance differs by state. Some lenders and employers may require you to have full-coverage automobile insurance. In layman’s terms, full coverage auto insurance provides peace of mind for a wide range of conceivable situations. However, it does not cover everything you would expect from a “full coverage” policy, and you will still be responsible for paying your deductible.

Here’s what you need to know.

• What Full Coverage Car Insurance Covers

Depending on your state, a full coverage car insurance policy will generally include liability, collision, and comprehensive coverage. It is critical to understand what constitutes a “full coverage” policy and how it is defined.

• Liability Coverage

Most states require liability coverage if you are at fault in an accident to assist cover the other party’s injuries and property damage costs. For example, your liability auto insurance may pay for the other driver’s medical bills, car repairs, other property damages, lost income, and legal fees in the event of a lawsuit. While liability coverage is required in virtually every state, the minimum necessary amounts differ by type, with bodily liability limits often greater than physical damage limits.

These restrictions may be significantly lower than accident-related costs. Full coverage might signify more than the minimum required. The minimum bodily liability limit in California is $15,000. A “full coverage” policy may limit physical liability to $100,000.3 Higher limitations protect assets. You may have to pay out of pocket and forfeit your assets if the other motorist sues you for damages beyond your limits.

• Collision Coverage

In most circumstances, collision coverage is optional, unless your bank or lender requires it while you’re paying off the car loan. This policy covers the costs of repairing the car if you are at fault in an an accident, such as hitting another car or an immovable object like a light post or mailbox.

• Comprehensive Coverage

Comprehensive coverage pays for repairs to your car if it is damaged for reasons other than an accident with another car or immovable object. For example, many policies cover car damage caused by fires, hail, floods, falling tree branches, glass breakage, colliding with an animal, theft, and burglary.

• Additional Coverages by State

Some states require additional coverage. Progressive. “Car Insurance Requirements by State.” Any full coverage cars insurance policy may include one or both of the following coverage types:

• Uninsured/underinsured motorist coverage: Some states mandate you to carry uninsured/underinsured car coverage to cover your expenses if you are hit by a driver who does not have insurance and are injured or damage property. States might require insurers to provide coverage, which you can then decline.
• Personal injury protection (PIP): Personal injury protection (PIP) coverage pays for medical bills, burial expenses, and economic losses caused by lost work or the need for household assistance, regardless of who is at fault. Some “at-fault” states need this insurance. Other states compel insurers to provide this coverage, which you can always decline.

What Full Coverage Car Insurance Doesn’t Cover

It’s critical to recognize that comprehensive coverage does not imply that you’re completely protected against all risks. Examine all car insurance options carefully to determine what is covered and what is not. All plans include exclusions, which identify the types of events that are not covered, such as:

• Damage due to wear and tear: You will have to pay for this damage out of pocket.
• Gap insurance: If you total a leased or financed vehicle and owe more than its value, guaranteed auto protection (GAP) insurance will cover the difference. Some lenders or insurers require complete coverage to be eligible for GAP insurance.
• Rental car reimbursement: If you’re involved in a covered accident and your car requires repairs, this coverage might help cover the cost of a rental car.
• Roadside assistance or towing: If you run out of gas, are locked out of your car, have a dead battery, or require additional assistance on the side of the road, roadside assistance coverage will get you aid and save you money.
• New car replacement: If your new car is totaled within the first year, new car replacement coverage ensures that you can replace it with a vehicle of equal worth. You won’t have to worry about how depreciation affects your settlement.

Full Coverage Car Insurance Cost

The average annual cost of car insurance (classified as liability, collision, and comprehensive) in the United States was $1,176 in 2019-2020, according to a 2023 National Association of Insurance Commissioners (NAIC) report. The premium you wind up paying depends on a variety of factors that are regulated by state legislation, including your:

• Personal characteristics: Age, driving experience, gender, location, marital status
• Coverage: Coverage types, limits and deductibles, previous insurance coverage
• History: Claims history, credit history, driving record
• Auto: Miles driven, vehicle type, vehicle use

Obtaining many quotes for comparison is the most effective way to know how much complete coverage will cost. You can readily obtain quotations from insurance providers’ websites. If you’re still unsure where to begin, check out our list of the best car insurance carriers for 2024.

• When Do You Need Full Coverage Car Insurance?

When financing or leasing a vehicle, you are normally obliged to have full coverage auto insurance. The lender or leasing firm will require documentation that your car is fully insured for the duration of the loan or lease term. If you don’t have insurance, the lender can purchase it for you.

Additionally, you may need full coverage if you:

• Drive an expensive car that could be costly to repair
• Commute regularly in heavy traffic
• Can’t afford or prefer not to pay repairs out of pocket
• Live in a high-risk area due to weather, crime, or other elements such as many animals or overgrown trees
• Have assets you wish to protect with higher limits

When You Don’t Need Full Coverage Car Insurance

Once your car is paid off, you will no longer be needed to have full coverage car insurance. At that point, you can decide whether or not to keep collision and comprehensive coverage.

You likely won’t need full coverage car insurance if:

• Your car’s actual value doesn’t justify the insurance costs.
• You face few risks of vehicle damage.
• You would prefer to pay for repairs out of pocket.
• You would rather buy a new car if your current vehicle gets damaged.

When Can You Drop Full Coverage Car Insurance?

Once you have paid off your car loan, you can cancel collision and comprehensive insurance. However, if your car is more valuable, you should consider preserving these coverages.

• Does Full Coverage Car Insurance Cover At-Fault Accidents?

Full coverage car insurance covers the costs of repairing your car after an at-fault accident. However, in many states, it does not cover bodily harm to you or your passengers. In “no-fault” states, your car insurance will cover your bodily injuries up to the limits you paid.

• Is Comprehensive Car Insurance the Same as Full Coverage?

Comprehensive car insurance is part of full coverage. Comprehensive coverage protects your car against damage caused by events other than collisions, such as hail, fire, or flood. It also addresses theft and vandalism. A full coverage policy typically includes state-required insurance as well as collision and comprehensive coverage.

• What Are the Disadvantages of Full Coverage?

Full coverage insurance has downsides, including a higher cost than basic liability coverage. Furthermore, it may give you the idea that the policy includes everything. To provide greater coverage, you may wish to consider adding other types of insurance, such as guaranteed auto protection (GAP) or personal injury protection (PIP).

The Bottom Line

If you are financing or leasing a car, you will often require complete coverage. It can also be useful after you’ve purchased the car if it’s pricey, has a high risk of damage, or you simply want peace of mind. However, check beyond “full coverage” to ensure you have all of the protection you require, including appropriate limits and coverage for your individual issues.

Source: Investopedia