How to Choose Between Liability and Full Coverage

by Lee Nichols

When purchasing insurance for a vehicle that is paid for, you may choose either full coverage or a liability-only policy. Full-coverage policies provide reimbursement for anything that happens to the automobile and pay your medical costs in the event of an accident. Liability-only policies only cover injuries to other persons and damage to their property resulting from an accident that you cause.

1. Identify the replacement value of your vehicle. If your insurance agent is unable to provide that information, can use the value calculator at Kelley Blue Book to determine your vehicle's value. Provide the specifics of your vehicle, including its condition, to obtain an estimate of its value. Subtract the deductible for the policy you are considering to determine your vehicle's cash value.

2. Get quotes from your insurance agent for the cost of a full-coverage policy and a liability-only policy. Subtract the cost of the liability policy from the cost of the full-coverage policy. For example, if the cost of the full-coverage policy is $1,200 per year and the cost of the liability policy is $800 per year, the difference in the cost is $400.

3. Divide the cash value of the vehicle by the difference between the premiums. For example, if your vehicle's cash value is $4,800, dividing $400 tells you that it will take 12 years to save the value of your vehicle.

4. Determine your risk level. Subtract the money you will save each year from the vehicle's cash value. For example, subtract $400 from $4,800 to determine the first year's savings to be $400 if you sell the vehicle. However, understand that if you have an accident during that year, your loss is $4,400 because that is what it will cost you to replace the vehicle. Continue subtracting for each year to determine when the risk is less than the reward. Using this example, your risk of loss does not fall below your chance of gain until the seventh year.

5. Decide if the risk is worth the reward. Full coverage transfers the risk of loss to the insurance company whereas liability places the risk on the vehicle's owner.


  • Insurance requirements vary by state. Consult your state's laws to determine the amount of coverage you must maintain to stay in compliance with the law.

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