Insurance coverage is something that everyone needs but that few people feel they fully understand. Doing your own research can provide you with an abundance of information but no real guidance. Unfortunately, even turning to the experts (the insurance companies) is extremely confusing more often than not. Too many companies prioritize sales over individualized solutions and customer understanding, which can leave you feeling overwhelmed and more than a little disappointed. At Elephant Insurance, we do things differently. We want you to be an active partner in your insurance planning, and we aim to foster your understanding and involvement every step of the way. With our helpful representatives, free quote-finder tool, simple car insurance explanations, and informative articles (like this one!), we make sure you’re never in the dark.
One common area of confusion for car insurance customers is liability vs. full coverage insurance. Below, we’ll go through explanations of both, the differences between the two, and how to determine which option is right for you.
What is Liability Coverage?
Liability coverage covers other people’s injuries and property damage should the policyholder cause an accident. In other words, if you screw up, liability insurance makes sure that other people don’t pay the price.
This doesn’t mean that liability coverage doesn’t do anything for you though. It ensures that other people don’t have to pay out of pocket for their medical bills or repair expenses, and it makes sure that you aren’t on the hook for those costs, either. So, liability insurance offers financial protection for you and for others — that’s a win-win!
Liability insurance is sometimes referred to as third-party coverage and is often broken down into two main categories: Bodily Injury Liability Insurance and Property Damage Liability Insurance.
Bodily Injury Liability Insurance
Bodily Injury Liability Insurance, or BI for short, makes life a whole lot easier for other parties involved in a car accident if you were at fault. This type of liability coverage takes care of loss of income, medical bills, legal fees, pain and suffering, and, in a worst case scenario, funeral costs for the injured parties. “Injured parties” in this case can refer to the other driver and their passengers, as well as any bystanders or pedestrians who were injured as a result of the accident.
BI insurance, like many other types of car insurance, comes with a coverage limit. In this case, there are two coverage limits: the maximum amount your insurer will pay per person for each person involved in the accident, and the maximum total amount your insurer will pay overall. BI insurance limits are often written in the following format:
maximum per person payment / maximum total payment
So, if you choose limits of $25,000 per person and $50,000 total for your bodily injury policy, those limits would be written as $25,000/$50,000. The exact limits will vary based on your needs, but the second number almost always refers to the maximum your insurer will pay in total (if you forget, just remember that this will be the larger number).
Let’s take a hypothetical look at bodily injury insurance in action. Say you’re on your way home from a long day at work, you’re tired, and your reflexes aren’t exactly at their sharpest. You’re a little too slow on the brakes when the car in front of you stops at a stop sign, and BAM!, you ram into their bumper.
Everyone is pretty much okay, but the driver and each of their three passengers all go to the doctor to get checked out. After the initial appointments and treatment costs, the driver’s bill comes out to $15,000, and each of the three passengers’ bills amount to $20,000.
Since your insurance carries the $25,000/$50,000 bodily liability insurance limits we mentioned earlier, it’s easy to assume all four of those bills are covered. No individual bill exceeds $25,000, so you’d think insurance would cover the costs. You’re all good on that front…but will your insurance pay for the total cost of the accident?
Unfortunately, no. Since your maximum payout limit is set at $50,000 and the total medical expenses for the four occupants of the other vehicle clocks in at $75,000, you’re now on the hook for a whopping $25,000. Yikes!
Almost every state has a required minimum limit for bodily liability insurance, but as the example above shows, low limits are not your friend. In this case, low limits equal low coverage, and that can be a major pain in your wallet.
Property Damage Liability Insurance
Property Damage Liability Insurance, or PD, is (thankfully!) a bit less complicated. There’s only one limit to worry about, and it refers to the amount that your insurance company will pay towards the other party’s car repair costs if you cause an accident. This is the third number that will be tacked onto the limit format we talked about above. In the earlier example, if you also had a property damage limit of $20,000, that would all be written as $25,000/$50,000/$20,000. So, if the repair bill for the car you hit in the above example only comes to $3,500, your policy will cover the entire cost.
What is Full Coverage?
Having full coverage insurance means having several different coverage levels that combine to provide you with a broad scope of protection. No insurance policy can protect you in every possible circumstance, but full coverage comes the closest. Full coverage car insurance generally includes liability insurance (which we explained above), comprehensive coverage, and collision coverage.
Comprehensive coverage covers damage to your vehicle that isn’t due to an accident. For example, if someone clips your bumper, a thief breaks your windows, or a tree branch falls on your car in a windstorm, comprehensive coverage will take care of the repair costs.
Where comprehensive coverage takes care of repair expenses for damage to your vehicle while it’s parked, collision coverage covers damages to your car while it’s in motion. This means that it takes care of your repair costs after an accident, no matter who caused it. In the earlier example we went through, collision coverage would pay for the damage to your car even though you were at fault. Collision coverage would also pay for your repairs if you were to run into a guardrail or a light post, for example.
Some final considerations
One benefit of full coverage insurance is its flexibility. You can choose policies with high liability limits, options with low deductibles, uninsured motorist coverage, personal injury protection, rental reimbursement, and coverage for towing and labor. You have plenty of options so you can find the exact types and amounts of coverage you need.
In short: liability coverage covers the costs of an accident that you caused. These may include the other driver’s vehicle repair costs, as well as lost wages and medical expenses for them, their passengers, and any pedestrians or bystanders who were involved in the accident.
Full coverage combines a variety of different policy types, including options like collision coverage, comprehensive coverage, and liability insurance. There are additional coverage options as well, which can take care of things like rental reimbursement costs and towing expenses.
Get a quote today and know that you and your vehicle are protected.