Full coverage is a term that’s used all across the auto insurance industry. While the term might imply that there’s a policy that covers each and every scenario that can happen, there are still limitations that you should be aware of as you build a full coverage policy. Compared to a basic personal car insurance policy, a policy classified as full coverage is much more comprehensive. Start comparing car insurance rates now by using our FREE tool above!
It’s important that you know that full coverage isn’t some box that’s checked but instead a specific set of coverage options that provides both third-party liability coverage and physical damage coverage for your own vehicle. Read on, and learn exactly what’s covered at the core of full coverage and the limitations you should be aware of when you’re building your policy.
The Core of Full Coverage
Full coverage isn’t actually a coverage. It’s a term that’s used to quickly describe a policy that carries several different types of coverage that will provide comprehensive protection as a whole. At its core, a policy that fits the full coverage definition will include a combination of the following:
- Bodily Injury Liability
- Property Damage Liability
- Personal Injury Protection (in no-fault states)
Even buying full coverage at its core doesn’t mean that you’ll necessarily have coverage for every scenario. There are additional forms of protection that can be selected and added to a policy that will provide even more coverage that policies with the core coverage options. This is why research is so very important when you’re deciding on the level of protection that’s right for you.
What claims will the core coverage options pay for?
Now that you know what the industry means at the core, it’s important that you know what each individual coverage is meant to pay for. Some of the coverage are required by state law and others are completely optional in the eyes of state officials. Here’s a breakdown of what each option pays for under a personal auto insurance policy:
- Bodily Injury Liability (BI):
A required coverage in states with tort fault-based insurance law, BI pays when someone is hurt or killed in another vehicle and you’re considered to be the at-fault party in the loss. It will pay for medical bills, medical transport, rehabilitation expenses and more and is designed to protect your income and assets.
- Property Damage Liability (PD):
PD is another required coverage that will pay to either repair or replace property owned by an unrelated third-party. For your PD to pay, you must be at least 51% at fault for the loss. Limits carried are on a per accident basis and not a per vehicle basis.
- Personal Injury Protection (PIP):
PIP, which is also known as no-fault coverage, is only required in the 12 states that operate under some form of no-fault system. Unlike liability coverage, PIP pays for your injuries and the injuries of your passengers regardless of who causes the accident. It may also pay for income replacement and personal care depending on the requirements and your limits.
- Comprehensive Coverage:
Comprehensive, also known as comp, is an optional form of physical damage coverage that pays to protect a specific vehicle. Comprehensive pays for losses caused by perils like fire, theft, vandalism, flood, explosion and other losses when the car wasn’t moving. Comp is subject to a deductible and will pay up to the vehicles Actual Cash Value to repair the vehicle or to ultimately pay for a replacement.
- Collision Coverage:
Collision coverage is always a part of full coverage as well. This form of optional physical damage coverage will pay for damage sustained in an accident or while the vehicle is being operated. In most cases, collision pays you’re the at-fault driver and you’ll be required to pay a deductible that you choose when starting your policy.
When is full coverage required?
There are several different reasons you’ll need to carry full coverage on one or all of your vehicles. The most popular reason why a vehicle owner will choose to carry both the state-mandated coverage options and physical damage coverage is because the vehicle is currently being leased of financed.
Failing to buy physical damage coverage as a borrower puts the lender at risk.
Leasing and financing companies have full coverage requirements in their contract and take these requirements seriously. If you’re caught without full coverage, the company can legally add the cost of forced-placed insurance to your loan. This raises your principal and provides you with no protection if you have a damage claim.
Other Reasons to Buy Full Coverage
You can own a vehicle outright and still have a need for full coverage. If you have a late model vehicle and you can’t afford to pay for a replacement on your own, it’s important to invest in protection. You might also want to consider physical damage protection if you often rent vehicles and you don’t want to pay for the expensive collision damage waivers.
Types of Coverage Not Included in a Full Coverage Plan
As you’re pricing the cost of insurance, it’s important that you look at extras that don’t fall under the full coverage umbrella. It’s easy for the line to get blurred when you’re building a policy, but failing to delve deep and learn what extra protections you can purchase can lead to lessons in the long run. Here’s a breakdown of other coverage types that are available:
- Uninsured Motorist (UM):
Most states don’t require UM but do require companies to give you the option to purchase it. UM pays for your medical bills when someone doesn’t have Bodily Injury coverage and you are injured in an accident they cause. It also pays if the policyholder doesn’t have high enough limits.
- Medical Payments:
In tort law states, medical payments is optional and will pay for your medical bills regardless of who’s at fault for the accident. The limit on your policy is per person and not per loss.
- Rental Car:
Pays to cover the cost of a replacement car when your vehicle is damaged in a covered loss.
- Towing and Roadside Assistance:
Emergency Roadside Assistance covers breakdown, towing, lockout, tire change and other forms of emergency roadside assistance.
Gap Insurance will pay for the difference between the value of the vehicle and the amount left on the loan or lease so that you’re not left paying the difference out-of-pocket.
Why is it important to have a comprehensive insurance plan?
Insurance protects you financially. In today’s litigious society, having adequate liability limits is crucial to avoid having your assets liquidated or your wages garnished. If you do have low coverage limits and you experience a major loss, you could be stuck in court trying to save your financial future for years. Buying other protection that pays to help you during a difficult time can also save the day in the long run.
How to Choose the Right Coverage for Your Needs
A personal auto insurance policy is something that is very personalized. While there are basic one-size-fits-all policies that you can buy on a limited budget, these policies have several holes in the level of protection provided. If you really want to buy insurance that’s going to protect you and your family, you need to consider several different factors so that you can choose which coverage to purchase and which coverage to opt out of. Here are some factors you’ll need to consider:
- Fair market value of the covered vehicle
- Assets and income
- Health insurance deductible and annual limits
- Limitations to how health insurance covers injuries from an accident
- Zip code and theft rate in the area
- Incidence of uninsured drivers in your area
- Amount of loan balance vs. value for gap coverage
- Roadside assistance plans carried and limitations
- Current budget and what you can afford
It’s important that you take a look at your personal needs before you even start to shop for insurance. Only after you’ve learned about the optional and required forms of protection can you feel comfortable building a policy. If you’re comfortable with the options and you know exactly what you need and want, it’s time to start shopping. You can compare pricing for each option and limit by using a rate comparison tool online. Once you’ve been directed to the quotes, compare the insurers offering the protection and you’ll be confident you’ve made the right choice. Start comparing car insurance rates now by entering your zip code in our FREE tool below!