What Does Full Coverage Insurance Cover?

Full coverage insurance covers your vehicle in a collision.

Each U.S. state mandates a minimum amount of auto insurance its drivers must purchase. This is called "liability-only insurance," and it usually only provides accident coverage for other people and property involved in an accident in which you are at fault. However, many drivers, either by choice or mandate, purchase additional coverage known as "full coverage," which also extends benefits for you and your vehicle in an accident.

Identification

There are no limits that determine if an auto policy is considered "full coverage" or not. However, traditional insurance policies deemed full-coverage policies provide financial coverage for both the policyholder's vehicle and health care due to an accident, as well as liability, collision and physical damage coverage for other people, vehicles or property involved in an accident at the fault of the policyholder.

Lien Holders

If a lender holds a lien against your vehicle, the lending company will likely impose full-coverage insurance requirements on your vehicle until you pay off your loan. This insurance protects you from paying much of the balance of your vehicle loan should your car be totaled in an accident. Be aware, however, that many insurance policies will only cover a vehicle for its value at the time of the accident, rather than the balance on your loan. You may want to consider purchasing additional gap insurance, which will pay off the balance of your vehicle loan, regardless of how much the insurance company pays.

Costs

Full-coverage auto insurance is more expensive than liability-only policies. You may be able to reduce your auto insurance premiums by maintaining a good driving record free of traffic citations or at-fault accidents and claims. The type of car you drive and the amount of your insurance policy deductible also directly affect your insurance premiums. Additionally, many insurance companies check their drivers' credit scores on a regular basis, so avoid racking up high credit card debt and making late payments.

Expert Opinion

According Liz Pulliam Weston, MSN financial columnist and author of "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," approximately half of your auto insurance premium goes toward collision insurance for your own vehicle if you have a full-coverage policy. She suggests avoiding full-coverage auto insurance if you drive a low-value, older model vehicle with no loan balance against it. Instead, opt for liability-only coverage, which pays for the property and health care of others at loss due to an accident that is your fault.

References

• CarInsurance.com: What Exactly is Full Coverage Auto Insurance...?
• GreatInsuranceWorld.net: Full Coverage Auto Insurance
• MSN Money; Dump the Insurance on Your Clunker; Liz Pulliam Weston
• Insure.com: Minimum Levels of Car Insurance You are Required to Buy
• Bankrate; Car Gap Insurance: Is it Worth the Cost?; Russ Heaps