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Auto Insurance 101: Full Coverage Versus Liability-Only Coverage


auto-insurance-101-2​​​You never really know how valuable personal insurance can be until you have to put it to use. Don't let that be the first time you've reviewed your policies for gaps in coverage. Are you fully covered? Do you only maintain liability?  How do you know what type you should have?

In most states, when you own a vehicle, you are required to maintain some level of auto insurance coverage. For as long as there is a lien on the vehicle—or to put it simply—as long as you still owe a lender for it, you're required to maintain a full-coverage policy, which consists of comprehensive and collision insurance. This coverage is important because in the unfortunate event of a collision where your vehicle is damaged, comprehensive and collision coverage will cover the cost (up to a limit, based on your policy) to restore the vehicles involved (both yours and theirs should the collision be deemed your fault) back to its pre-collision state. This coverage offers a layer of protection to the lender to avoid the vehicle damages going unrepaired, and thereby, lowering the value of the car.

Remember that although you drive the vehicle, wash it, maintain it, and love it immensely, it really isn't, technically, yours until you've paid the entire note on the vehicle. And because of that, lenders reserve the right to require you to carry a full-coverage policy, per your purchase agreement, until they're released from responsibility of the vehicle. And for their protection, when you don't have the insurance you promised to keep until the car was paid off in result of you canceling the policy or some like event, the lender has the authority, based on your contracted financial agreement to force lender-placed insurance on your vehicle. That forced-placed insurance is likely to be significantly more expensive than had you secured your own auto insurance. Moral of the story: Keep the auto insurance you promised to keep.

When you've absolved your note with your lender, it is upon your discretion to remove the full-coverage policy and opt for liability coverage. Liability coverage will lower your premium because by its nature, it is a less comprehensive policy than the full-coverage policy that you were previously required to maintain. A liability-only insurance policy covers costs or damages to others or their property resulting from a collision concluded to be your fault. The amount of liability coverage you carry is up to you so long as you carry the minimum amount as dictated by your state department of insurance. Visit your state's Department of Insurance site for more information. 

If you're not sure whether the vehicle you're driving should carry a full-coverage or a liability-only insurance policy, contact your insurance agent for more information. 

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