UPDATED: Aug 5, 2013
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Most people don’t give their insurance policies much thought. Quite a few drivers don’t understand exactly what their policies cover until after a claim is filed, and by then it may be too late to correct any mistakes. Although learning about insurance may seem daunting, it’s an important aspect of being a responsible driver. It will protect you from unwanted surprises and help save you money as you bypass unnecessary options.
One of the first things any insured driver must understand is “full coverage” auto insurance. While it’s common to ask for a “full coverage” policy, that term may not mean what you think it means. Clarifying exactly what you want when you buy the policy will help keep you and your agent on the same page.
Definition of Full Coverage Insurance
Insurers generally make a distinction between “full coverage” and “liability-only” insurance. Liability policies are required by law but do not cover damage to the insured vehicle. Full coverage policies do provide first-party insurance, but the exact coverages offered might vary from one insurer to the next. Depending on the company you’re working with and the specific agent selling the policy, “full coverage” auto insurance can mean one of several things:
- A policy that includes both liability and collision coverage
- A policy including liability, collision and comprehensive coverage
- A policy including liability, collision, comprehensive and uninsured motorist coverage
- A policy including every available coverage sold by the company
Obviously, understanding which policy you’re getting becomes crucial. If you ask for full coverage expecting just collision and liability but end up with every possible coverage, you’ll find yourself paying for things you may not have wanted. If you take “full coverage” to mean that you do have every possible coverage, however, you will be unpleasantly surprised to discover that you’re missing an optional coverage like rental reimbursement or towing. In any case, it’s always best to ask for the coverages you want specifically, by name, and confirm that they’re listed on your policy’s declaration page.
Do You Need Full Coverage?
Now that you understand what full coverage means, it’s up to you to decide whether you need it. Full coverage insurance is not required by law, but it may be required by your lien holder or leasing agency. If you’re making payments on a vehicle, you will be required to carry first-party coverages. This protects the lien holder’s interests. Once the vehicle is paid off, you can decide whether to keep the full coverage or drop your coverage down to a liability-only policy. Most people with new, expensive vehicles opt to carry full coverage regardless of whether the car is paid off. As a car ages and its value approaches its repair cost, dropping first-party coverages may be a wise financial move.