When should you drop full coverage on a car?

Full coverage car insurance is financial protection in case your car is damaged or stolen. But if the value of your car is low enough, it may not make sense to carry full coverage insurance.

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Rachael BrennanSenior Editor & Licensed Auto Insurance ExpertRachael Brennan is a senior editor and a licensed auto insurance expert at Policygenius. Her work has also been featured in MoneyGeek, Clearsurance, Adweek, Boston Globe, The Ladders, and AutoInsurance.com.

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Full coverage insurance protects you in case your car is stolen, destroyed, or damaged in an accident, but it is more expensive than carrying a liability-only insurance policy. One of the easiest ways to save money on your car insurance is to cancel your comprehensive and collision coverage, but this isn’t always a smart choice.

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Switching from full coverage car insurance to liability only can help you save money on your insurance premiums, but how do you know if and when you should consider dropping full coverage on a car? 

Key Takeaways

  • Full coverage insurance is a catch-all term that can include a variety of coverages, including liability, comprehensive, and collision insurance

  • Drivers who can’t afford to replace their car after a total loss should carry full coverage to protect themselves financially

  • Drivers who have a loan on their vehicle are required to carry full coverage insurance by their lender

  • If you can afford to replace your car after a total loss, choosing to drop full coverage insurance may be the right choice for you

What is full coverage auto insurance?

Full coverage insurance is a catch-all term used to describe a car insurance policy that includes liability, collision, and comprehensive coverage. This means you have coverage protecting yourself and your property in addition to damages you may cause to someone else or their property in an at-fault accident.

The term is a bit of a misnomer, however, because there is no such thing as a policy that covers you completely in every situation. For example, if you choose full coverage with minimum levels of liability insurance you will still be held liable for any damages that go beyond the limits of your coverage. 

Full coverage insurance typically includes:

  • Liability - Liability coverage pays for damages you cause in an at-fault accident. This includes both bodily injuries and property damage 

  • Collision - Collision coverage pays for damages to your vehicle due to an accident, no matter who is at fault. If you hit a fence post or rear end someone on the highway, collision coverage will pay for repairs after you’ve met your deductible

  • Comprehensive - Comprehensive coverage pays for damages to your vehicle that aren’t caused by an accident. Fire, theft, and flood are just a few examples of things covered by comprehensive insurance

While the value of your comprehensive and collision coverages is determined by your vehicle, you get to choose how much liability insurance is right for you. Many states have low minimum requirements for liability coverage, so choosing just the state minimums might leave you without enough coverage in an accident. Policygenius recommends carrying liability levels of 100/300/100, but if you can’t afford that you should carry as much liability insurance as you can afford.

Depending on the laws in your state, you may be required to carry additional coverages. You might also choose to purchase additional insurance as part of your full coverage policy, including:

  • Uninsured/Underinsured Motorist - Also referred to as UM/UIM, this coverage protects you if you are hit by an uninsured driver or are the victim of a hit and run accident

  • Personal Injury Protection - Also referred to as PIP, it covers medical expenses no matter who is at fault in an accident. It can also pay for lost wages, legal fees, and other expenses related to the accident

  • MedPay - Similar to PIP, MedPay provides coverage for you or your passengers in the event that you need medical care after an accident. For example, MedPay can be used to pay for deductibles and other costs that are not covered by your health insurance

  • Gap Insurance - If you have a loan on your vehicle and it is totaled in an accident, depreciation may mean that your insurance will pay you less than what you owe for the car. Gap insurance would cover the difference between the amount you are paid for your claim and the amount you still owe to the bank so you aren’t required to make payments on a totaled car

These are just a few of the types of insurance that can be included in a full coverage policy. Working with an insurance expert is the best way to make sure you have all the coverage you need to protect yourself in the event of an accident.

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When should you keep full coverage?

If you can’t afford to replace your vehicle in the event of a total loss, full coverage is the best way to protect yourself financially. Carrying liability only coverage could leave you responsible for repairing or replacing your car on your own, so if you can’t afford to do that, you’ll need to carry full coverage insurance.

If your car is financed or leased you may not have the option to carry liability only insurance. Most loan companies require you to carry full coverage insurance to protect their investment, requiring you to list them as a lienholder on your insurance policy so they can be notified if your coverage is changed or cancelled. 

When can you drop full coverage?

If your car is paid off and you can afford to replace it out of pocket you can safely drop your coverage to liability only, but how do you know if you can afford to replace your car?

If your car costs less than your deductible you should consider dropping your comprehensive and collision coverage. For example, if you have a $1,000 deductible on your policy but your car is only worth $850, it doesn’t make sense to carry full coverage. This is common for people driving older vehicles with high mileage.

You can also consider dropping full coverage if your comprehensive and collision premiums equal 10% or more of your car’s actual cash value.

Most drivers need the financial protection that comes from carrying comprehensive and collision coverage. If you have no loan or other financial commitments on your vehicle you can legally carry liability only insurance. However, just because it is legal doesn’t make it a wise choice, so if you cannot afford to replace your vehicle if it is totaled you should still carry comprehensive and collision coverage.

Can you keep just one part of your full coverage insurance?

Because full coverage insurance is a collection of coverages rather than one single policy, you can choose to keep individual portions of your coverage if that works for you. For example, comprehensive insurance might be a necessity for you if you live in an area prone to natural disasters, so you could choose to drop your collision coverage but keep your comprehensive policy in place.

There are other coverages often included under the full coverage umbrella such as UM/UIM, PIP, and MedPay that you may have the option of keeping or dropping depending on the laws in your state. Drivers who want to be protected in an accident with an uninsured driver may choose to keep their uninsured motorist coverage in place while dropping their comprehensive and collision coverage.

Can you drop full coverage on just one of your cars?

Each of your cars is unique, which means carrying the same coverage on all of your vehicles isn’t necessarily the right choice. If you have one car that is older and has a lower value than your other vehicles you can absolutely choose to carry liability only on that car while carrying full coverage for the rest of your vehicles.

Can you drop full coverage on a financed car?

Car loans typically require you to keep full coverage until the loan is paid off, which means that you cannot carry liability only coverage on a financed car. Drivers who want to save money on their car insurance can find other ways to lower their rate, such as: 

  • Comparing quotes from multiple companies to make sure you are getting the best rate

  • Keeping their driving record clean of any tickets or accidents

  • Bundling their policies

  • Maintaining a good credit rating

  • Taking advantage of any discounts (group discounts, good student discounts, etc.)

Frequently Asked Questions

Should I get full coverage on an old car?

Drivers who cannot afford to replace their car if it is totaled should carry full coverage, no matter how old their car or how many miles are on it. Whether you drive a brand new car, a 7-year-old car, or a 15-year-old car, you need to carry full coverage insurance if you can’t afford to replace your vehicle out of pocket.

Do you need full coverage on a used financed car?

You should expect to carry full coverage insurance if you are financing a car. New or used, any car that you finance will likely have a clause in the terms of your loan requiring you to carry full coverage insurance.

What is the 10% rule?

The 10% rule says you can consider dropping full coverage insurance when the annual premium meets or exceeds 10% of your car’s market value. For example, if your car is worth $4,000, paying $400 or more for full coverage might not be worth it to you. This is highly dependent on your financial situation — if you can’t afford to replace your car in the event of a total loss, it is probably worth it to you to keep your full coverage insurance in place.