Only Having Liability Insurance on Your Car

Car Insurance: Liability Only

I didn’t always only have liability insurance on my car. I once had full coverage.

It all began when I started reading Dave Ramsey’s book, Financial Peace. He made a point about how so many people who struggle financially often have two new (or newer) cars sitting in their driveways.

People often squeak by with no savings and have credit card debt. Many of these same people also have new cars with auto loans. If you have any kind of a loan on a car, full coverage insurance is generally compulsory.

Then I read another book about How To Survive Without a Salary. The author makes a point about the ridiculousness of having full coverage on a car that isn’t worth much.

I began thinking about the value of my manual two-door hatchback. I was paying full comprehensive and collision insurance, and I had long ago finished making payments.

New Cars Require Full Coverage Insurance

I bought my car new. Usually, in my tendency to save money and be green, purchasing a new car wasn’t something I considered lightly. But, I had had a small Volkswagen car that had been in five accidents (they weren’t my fault). I traded that in for a Subaru that later leaked oil, and I had to replace five rear-wheel bearings. Those repairs were not cheap.

I finally decided to get a new car that I knew hadn’t been in an accident and was under warranty for repairs. I got a small, gas-efficient stripped-down Focus. I love my car.

Because I was making payments on it, I carried full coverage insurance. The value of the car far exceeded any cash that I had lying around.

When you’re making payments, lenders require that you have full coverage. In the event of an accident, fire, or theft, the insurance companies will still be able to collect on any amount you still owe. The full coverage insurance covers repair costs for your car and will also give you a check for your car’s value should you total it.

But, what happens when you finish all those payments?

I kept full coverage for a while. In fact, I kept it on until my car’s value depreciated to about $5000. That was in late 2010.

After that, I called my auto insurance company and canceled my comprehensive and collision insurance.

Why would I do that when the insurance company would pay to repair my car if it was in an accident?

Why I Canceled My Full Coverage

I had two reasons. First, I wanted a lower insurance premium. Canceling my full coverage saved me $600 a year.

Second, I could now afford car repairs. I was now willing to repair my car up to the cost of its value and had saved the cash to do so.

Thus, if the condenser for the air conditioning went out, I could fix that. If the motor stopped running, I could afford to repair it. However, if repairs exceeded the value of the car, I knew it would be time to get another car.

The thing is, I may get a new car again in the future. I am eyeing the electric cars on the market because you can get tax rebates for such purchases.

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New Car and Drawbacks

But the drawbacks of having a new car are serious. For most of us, buying a new car entails car payments. You pay interest on those car payments.

Thus, a car costing $20,000 will cost you $27,000 after paying it off for five years at an interest rate of 7%. 20,000 x (.07/12) x 60 = 7,000. That’s a lot of extra money with which you could do a lot of things: an extra vacation, a remodel on the house, or even a down payment for a new car.

Plus, there’s the fact that you’ll have to pay for full coverage insurance throughout the life of the loan. An extra $60/month for five years (which is what I had on my Volkswagen when I had it) = $3600. That’s a lot of money in insurance costs. Now, you have an extra $7000 you’re paying in interest, plus the cost of full coverage at $3600. That’s $13,600 worth of extra costs over five years for the car!

You also have to think about how a car depreciates. As soon as you drive it off the lot, chances are, you now owe more than it’s worth. This happened to me. After about the third time someone hit my Volkswagen, I started thinking that I needed another car. I was driving a dent magnet. Unfortunately, the value of the car was less than what I owed. I had to wait another year and a half (and two more accidents) before I could finally trade it in and come out ahead.

I’ve all but convinced myself always to buy a car where I’ll need liability insurance only. Basically, liability insurance will cover the cost of repairs for the other person’s car if I’m in an accident and it’s my fault.

My policy may even help to cover medical costs, but it’s up to the individual policyholder. Insurance companies and policies are different—it's always a good idea to check with your insurance provider about the specifics of your situation.

Having a car with liability insurance means that I have a cheaper car in the first place, and I don’t have to pay nearly as much in insurance costs.

I may have to fork over money for repair costs. That part is a gamble. But, chances are good that I won’t have to pay repair costs or that they won’t be that costly.

When Should You Cancel Full Coverage Insurance?

It’s definitely up to you as an individual to determine whether to carry liability insurance only on your car. Would you be comfortable with footing the bill for the repair costs? Would you rather pay your insurance company to take care of that for you?

A good guideline is to determine the value of your car. I stopped carrying full coverage when its value was at $5000 because I am comfortable paying for repairs up to that value. It’s not worth the extra $600/year for me.

It also helps that my husband is great with cars—he rebuilds them. Thus, if I get into an accident, I have his truck as a backup, as well as a third car that he’s working on. It stays parked, but if I had to, I could put plates on that and add liability insurance easily.

No, it’s not as glamorous to drive around an older car. We’re programmed to like new and innovative things in our society. I’m not saying whether that’s good or bad, but if you’re a money-saver like I am, you don’t always win the “ooohs” and “aaahs” with your friends and family when you’re driving an unassuming older car.

You have to think about what’s more important to you: to be out of debt and save more money or to drive a sleek new car. Either way, you pay, just in a different way.

Lower Your Insurance Premiums

Indeed, it is up to you, the individual, to determine whether you will carry full coverage or liability coverage.

Weigh the cost of the premiums against the value of your car. If a car is worth $3000 and your comprehensive and collision insurance is about $200/year, you've paid 1/2 the value of your car in insurance premiums in one year. But, if you total it, the insurance company will give you a check for the value of the car at the time (which is often lower than you would think), minus the deductible. That $3000 car might be worth $1500 if you totaled it, plus the deductible. That could amount to a total of $2000.

To save on premiums, you can also raise the cost of your deductible. By going from $500 to $1000, your rates have the potential to drop dramatically. Just be sure you can handle the amount of the deductible should you ever need to pay it.

Something else to consider is the fact that if you only have liability insurance, you must purchase the extra insurance if you ever rent a car. Your insurance will not cover you—generally—if you are in a rental car. Each policy is different, however. Check with your insurer to be sure.

Smart Practices

When I bought my Focus, I intentionally looked for a stripped-down version. They're much easier to work on that way. They're also everywhere, so it's easy to find parts for them.

It's also nice if you have someone good at working on cars in the family. My husband is my insurance policy. All jokes aside, we can find parts we need, and my husband can install them and/or tweak them.

If you have the space, buy a very cheap alternative car. My sister has two used older cars. When one breaks down, she can still use the other one. That way, she won't have to depend on the insurance company to come through for repairs and deductibles.

I admit it's great to have a sleek new car with all the bells and whistles. However, it's more important to me to save up for a trip to Spain or a ski trip to Patagonia than it is to have a new car.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2012 Cynthia Calhoun

Comments

Cynthia Calhoun (author) from Western NC on May 10, 2013:

Vicki - hehe, yes, great minds. ;)

Audrey- hha, I love your pun!

Theater girl - thank you. :)

Pinto- that's great and good to know about TP insurance. :)

Subhas from New Delhi, India on May 09, 2013:

Hi cclitgirl! You have very clearly defined the terms and their usability. In our country to there is TP insurance which means third party similar to liability and I always go for that.

Jennifer from New Jersey on May 09, 2013:

Very useful article. Thanks for sharing!

Audrey Howitt from California on May 09, 2013:

Such a useful way of look at this Cyndi! Your article is so comprehensive (pun not really intended)---

Victoria Lynn from Arkansas, USA on May 09, 2013:

Great tips! I would consider, and have done so in the past, dropping to liability once my car isn't worth much.Great job, sis!

Cynthia Calhoun (author) from Western NC on January 27, 2013:

MT - thank you so much! Yes, it's good to weigh the pros and cons. You're absolutely right. :)

Shasta Matova from USA on January 26, 2013:

This is a great idea - I used to have full coverage for my cars, and you're right, you do need to look into what the insurance company will pay you to decide whether the cost of the insurance is worth it. Voted up.

Cynthia Calhoun (author) from Western NC on September 20, 2012:

Tipstoretireearly - given your username, I'm willing to bet we think alike on many things. :D I'm right there with you: WHY pay for a new car when you can save for SO MANY other things? LOL

tipstoretireearly from New York on September 19, 2012:

Great advice, especially as the average age of cars keeps increasing. Why pay so much for full coverage on a car getting on in years? Its better to put that money towards repairs or your next new (used!) car.

Cynthia Calhoun (author) from Western NC on June 12, 2012:

Carozy - thanks for stopping by! Yeah, I figure a second old car is like "insurance" hehe. I appreciate your feedback. :)

carozy from San Francisco on June 11, 2012:

Definitely agree on this one, for older cars especially full insurance can be such a waste.

Cynthia Calhoun (author) from Western NC on June 04, 2012:

Phil Plasma - great! Good to know. There is STRENGTH in numbers. :D Thanks for stopping by. Safe travels, too.

Phil Plasma from Montreal, Quebec on June 04, 2012:

I haven't paid for more than liability insurance in many years. I'm certainly with you on this idea.

Cynthia Calhoun (author) from Western NC on June 02, 2012:

Hola, alocsin. How goes it? Glad you stopped by. I know you've been busy. I love it when I feel like I've written a hub that people find helpful. Thanks so much for your input - cheers to our older cars!

Cynthia Calhoun (author) from Western NC on June 02, 2012:

Alexander - wow! You could write a hub about that! :D Sorry the Tahoe has been such a lemon for you. I can definitely relate: my VW Bug and Subaru gave me more headaches than they were worth. I do like changing things up a bit, so having a couple cars to alternate keeps life a little more interesting, because I'm definitely not immune to wanting a new car from time to time. Indeed, I bought my Focus new. But, I do plan on keeping that car a long time. I envision writing a letter to Ford when it gets to 500,000 miles, LOL. There's also the added benefit of saving a buck. I have my eye on a trip to Spain - I've got the travel bug bad! :) Glad I could help there. Cheers!

Aurelio Locsin from Orange County, CA on June 02, 2012:

I absolutely agree with this strategy and have implemented it on my own car, which is over 12 years old. It saves quite a bit of money on insurance. Voting this Up and Useful.

Alexander Silvius from Portland, Oregon on June 02, 2012:

I voted this useful AND awesome (and up of course). I completely agree with your reasoning here.

A few years ago, I gave up my Ford wagon to buy a 4X4 Tahoe. BIG MISTAKE. That wagon was my dream car and I weighed the cost of restoring it against buying a Tahoe, expecting that because a late 90's vehicle would be more reliable and need less work than my wagon currently needed, I would be better off. That Chevy has been a thorn in my side ever since, and partially because of its unreliability, I downgraded from full coverage to liability only. It also has a kill switch and a good alarm and no one has ever stolen it - the main reason for getting full coverage.

Now I am considering getting a newer car with low miles because shelling out the money for a good car is a smart idea if you want reliability. But I love having different vehicles, and after reading this hub, I am reconsidering getting a second vehicle and making that Tahoe a backup.

Point is, you're right. There are smarter ways to spend your money, and if you have some cash backup, measuring the worth of your car against full coverage insurance is a wise thing to do. Not only that, a much older car can often be cheaper to fix if it doesn't have a million computers or other electronics - or is exotic in some way. I had an old Chevy truck (1967) with a straight six and it bent a rod. Luckily it didn't punch through the block, and when it was fixed, it ran like a dream. It cost me around 60 bucks or less. That was over ten years ago I admit - but point is that labor cost was low and the parts were cheap because it was a simple old car.

Thank you for reigniting my passion for cheapness and old cars and the reminder that there are alternatives to doing things the accepted way.

Cynthia Calhoun (author) from Western NC on June 02, 2012:

Judy - welcome to HubPages. :) I hope you enjoy it here. This is a wonderful, supportive community.

Judy Mac from In the country. The closest big city is Atlanta, Georgia. on June 01, 2012:

You're welcome. It's nice to know that I'm contributing somewhat even though I've only been on HubPages 2 weeks next Monday.

Cynthia Calhoun (author) from Western NC on June 01, 2012:

Judy - right there with you. I mean, I have friends that have damage on their cars, but they won't file a claim for fear that their rates will go up. So, they let the hail damage go or the fact that they hit their mailbox go, or even the cracked windshield (on or two windshields won't make much of a difference, but more than that, they don't like that so much). It's not that I have deep pockets, either, but really, if I crunch my bumper on the tree stump near my driveway, I'll just go find a similar car at the junk yard and slap a new one on. If my car is damaged beyond repair, well, I'll drive the one that sits in my driveway and use the money I have set aside for repairs anyway, and put a little savings toward a new (used) car that once again, I only would put liability insurance on. Thanks so much for all your wonderful comments and feedback. :)

Judy Mac from In the country. The closest big city is Atlanta, Georgia. on June 01, 2012:

With the chance of getting non-renewed or cancelled for several small claims, would you really file a claim for damages of less than $1,000? Probably not. Your deductible should be as high as you can scrape money together to pay. (for the sake of the lower premium.)

Cynthia Calhoun (author) from Western NC on June 01, 2012:

LMW - that's really interesting. Hehe, I love it when I write a hub thinking I'll help other people, but y'all from New York have definitely educated me on the goings-on in NY. That's really neat! :)

LandmarkWealth from Melville NY on June 01, 2012:

My uncle owned an autobody business in Brooklyn for many years. Let's Just say that in NY if you get into a car accident and your car isn't totaled it can be quite a profitable venture for you if you know the right people.

Cynthia Calhoun (author) from Western NC on June 01, 2012:

Teaches - agreed. I'm thinking you don't live in New York, hehe. Thank you for coming by and commenting. Always great to see you. Hubhugs!

Cynthia Calhoun (author) from Western NC on June 01, 2012:

Tillsontitan - you're the second person who's talked about insurance and the car industry in New York. Whew! What's going on up there? Hehehe. Interesting...very interesting. Thanks for stopping by. :)

Dianna Mendez on May 31, 2012:

Our cars are older, but till moving along well enough. WE carry only the minimal coverage, it covers what the state requires. I agree that new cars do need full coverage. Hopefully an accident does not occur, but if it does the coverage is worth the price. Great topic and well covered.

Mary Craig from New York on May 31, 2012:

You have some great ideas and a lot of common sense suggestions here CC. Unfortunately I too live in New York, the land of taxes and high car insurance. High car insurance here is a true safety net..finding a good adgent or insurance company is our best bet.

Voted up, useful and interesting.

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Glenn - interesting story. I always love surprise checks from insurance companies. I have gotten those a time or two. :)

Indeed, you are smart in weighing all the pros and cons of your situation. It's comforting to have full comp and collision insurance for a lot of people and if they don't mind paying it, that's what it's there for. That being said, it would be awful to have a car accident and then deal with the mess afterwards. But, in my situation, I have another car I can drive, a cheap car I can fix, and a very handy hubby who can fix them. Soo, it makes sense for me not to have it. :) I *never* did say that I won't ever get a new (or newer) car with full comp and collision again, but I feel like it's worth it to not have that - at least right now. :) Thanks for stopping by and I'm glad I could help save you a few bucks. :)

Glenn Stok from Long Island, NY on May 31, 2012:

You gave me a great idea. Raising my deductible in order to reduce my premium. I'll have to call my insurance company tomorrow to discuss that. I feel comfortable having to pay a larger deductible in case of an accident.

For that matter, I already had an experience where I was rear-ended by a tailgater when I had to stop to avoid hitting the follow in front of me. I always leave enough room so I was only hit in the rear. My insurance company went ofter him for the deductible, succeeded at collecting it, and sent me a surprise check for that amount many months after settlement.

Bottom line, I like keeping full coverage because they fight for me to regain the deductible, at no expense to me. But I like your idea to increase the deductible. Thanks.

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Healthy Pursuits - 14 years! Wow! That is *awesome* :) Did you write the company and tell them? My sister in law had a Subaru for 12 years and it went kaput. She wrote to the company explaining her satisfaction and that she would have preferred if the car had just kept going. It seemed to be fine but then multiple systems failed at once. They actually sent her a coupon - yes, a coupon - for 20% off of her next Subaru purchase!

I will admit I get the "can I just drive a DIFFERENT car?" syndrome, but the thought of getting back into having car payments and paying all that insurance sounds dreadful. I haven't done that in a long time, and I can't imagine going back to that. I wonder how "used" electric cars will fare in a few years. :D

Cynthia Calhoun (author) from Western NC on May 31, 2012:

LMW - I think you're right. I live in the southeast and in the country at that, so you learn to take care of things yourself. If I lived in the city, I'm sure they wouldn't just let you tow your car to your front yard. Hehe. It's interesting that the auto body business is corrupt as you say. I never knew that. Thanks for coming by again.

Karla Iverson from Oregon on May 31, 2012:

Great hub! Thanks for the fantastic information on paying only liability insurance. By choice, I've driven only compact used cars for many years now. I think having a car payment is a racket, and am not that enamored of new cars. I'll change my mind when I can afford a new electric car and can plug it in at home using a solar panel for energy. In the meantime, I don't have to make a car payment and, like you, pay only liability insurance. My record is keeping the same car for 14 years. That was a good car!

LandmarkWealth from Melville NY on May 31, 2012:

I think where you lives matters somewhat. Unfortunately here in NY the Auto body business is extremely corrupt and you can't simply tow your own car or dtermine where is gets sent when you're on the way to the hospital. Years ago we had what was called "chasers". That has been somewhat reformed a bit. But it's still very corrupt. My guess is in other parts of the country it's a bit easier. Nice to meet you as well Judy Mac

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Judy Mac - aw, thank you for your input and expertise and for reading thoroughly. :) Indeed, I did not make this decision lightly, and while no one wants to get into an accident or have the misfortune of paying for car repairs, it pays to know what situation you're getting into in the first place. Thank you so much for commenting and I'm sending hubhugs to you. :)

Cynthia Calhoun (author) from Western NC on May 31, 2012:

LandmarkWealth - indeed, I think it's wise to ponder the pros and cons, and to seriously consider your own financial situation before making any decisions regarding insurance. In my situation, I will say that I can tow a car with my truck, or with a friend's truck, etc. You bring up good points and it just goes to show that you need to consider a few things to be sure carrying liability insurance only is the right thing for you. Thanks for your insights and input and for stopping by. Cheers!

Judy Mac from In the country. The closest big city is Atlanta, Georgia. on May 31, 2012:

Well, hello to you, LandmarkWealth. I've read over it again, and I think the Hub addresses your concerns and the author goes step-by-step in how she's giving her advice. Nice to meet you on HubPages.

LandmarkWealth from Melville NY on May 31, 2012:

A word of caution about canceling things like collision. Last year I was in a serious accident that was not my fault. Yet while I was taken to the hospital the car was towed to an auto body place. The contra insurance company paid expenses only up until the point of the adjuster reviewing the damage. The day they completed there inspection they no longer covered the storage cost of the vehichle. They notified me at 3 pm that I had to have the car towed by the end of the day. That left me 2 hours to find a scrap yard, arrange for a tow, pay the auto body shop in cash since that's all they took and produce a title for the car. This actually took several days. So I got stuck with two days of storage. I had to front all the money and miss about another 2 days of work. Since I had no collision on an old car I was forced to front all the costs and wait for the rembursement only for the covered days. With collision your insurer would handle all of this for you. Even when you get reimbursed for covered costs it's really only about 80% of the outlay. The total costs uncovered amounted to way more then I saved on canceling collision.

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Judy Mac - wow, your experiences are indeed typical, too, in that insurance companies *love* to lowball the ACV. My dad once totaled his truck and it was about 5 years old. They gave him so much less than the Kelly Blue Book said. They thought it was "in acceptable, not good" condition. Argh! Good for you for standing up for yourself against the insurance company, too. They need to be put in their place sometimes. Thanks for stopping by. Hubhugs!

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Nifwlseirff - indeed you are right! Every state in the US (I can't speak for the rest of the world) requires minimum liability insurance, and even then it can get expensive. I like your plan: purchase a car outright, no loan and no interest!! :)

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Vellur - hello, friend! Thanks for stopping by. I am currently trying to save for a nice camera and then a trip to Spain. It's easier to do that without a car payment. Hehehe. Hubhugs!

Cynthia Calhoun (author) from Western NC on May 31, 2012:

Thank you so much, Shesabutterfly. :) Congratulations on getting married! I'm thrilled that you found this helpful - It's always awesome when you can help someone save a few bucks. Hubhugs!

Cynthia Calhoun (author) from Western NC on May 31, 2012:

UnnamedHarald - that's great! Just make sure to do a little research, call your insurance company and ask questions. Thanks so much for stopping by. :) Cheers!

Judy Mac from In the country. The closest big city is Atlanta, Georgia. on May 31, 2012:

This is a great hub. We have an older truck plus a new car, on which, as you said, we are forced to buy full coverage insurance. We dropped the comprehensive coverage on the truck, as you also said, when the car loan was paid off and the value had dropped. I'd like to add that some companies won't pay full replacement cost even on a total loss. They lowball the estimate of value and, even when you've done your research and find 3 cars in the immediate area that sold (in our state, the ACV is the market value)recently for an average of $6,000 more than we were being offered. Only after we threatened a "Bad Faith" lawsuit against them, did they ante up to within $2,000 of the real ACV. At that point, we stopped our efforts, as the cost of the appraisal process would have nullified any increase in the payment that resulted from it.

Kymberly Fergusson from Germany on May 30, 2012:

The minimum insurance here (compulsory) is liability plus third party, so it's fairly expensive to begin with.

I think a good plan is to save enough to purchase a car outright - no loan, and therefore no interest!

Nithya Venkat from Dubai on May 30, 2012:

Great hub, with excellent tips. Saving up for trips is much more important. Clever and wise. Thanks for sharing.

Cholee Clay from Wisconsin on May 30, 2012:

Great hub cc! I'm getting married in Sept and my fiancé and I both have older cars. We'll be picking up the insurance for both of these vehicles, this is great information and may just save us a few bucks.

David Hunt from Cedar Rapids, Iowa on May 30, 2012:

Your article is just the kick I need to look into this. We have two older cars and I've been considering lowering/dropping coverage. Thanks! Voted up, interesting and useful.

Cynthia Calhoun (author) from Western NC on May 30, 2012:

Hi, Bill! :) Thanks for stopping by. You know, honestly, these last four years I have had the "your job might be cut" hanging over my head. So, I focused on getting everything paid down and paid off. Now, it's put me in a good position for other things, hehehe. That's a relief. But, I still love the idea of a hybrid or an electric car - those things just are calling my name. In time, I suppose. :D

Bill Holland from Olympia, WA on May 30, 2012:

Wise words here my friend! We have a new car and we are stuck with full coverage but luckily it only costs us $95 per month. We are very lucky and I can live with that. I hope others pay attention to your hub because they can save big bucks.