Minimum Liability vs. Full Coverage: Which Auto Insurance Should You Buy?

Should I buy full coverage or minimum liability?

It's a question I get from friends almost every time their auto policy renews: “Should I just drop down to the minimum liability? My car's old, I drive fine, and I could save a hundred bucks a month.” I get the temptation. But after digging through the data on what an accident actually costs, I've come to a blunt conclusion: unless your car is worth less than a couple thousand dollars and you have a healthy emergency fund, buying only the state-mandated minimum is a financial gamble that can ruin you. Here's my case.

The sticker shock of a real crash

Let's put real numbers on the table. In 2022, the average auto liability claim for bodily injury was $24,211, and the average property damage claim was $5,313 (III – Auto Insurance Facts & Statistics). Those are per claim, and if you cause a two-car accident with injuries, your liability limits are going to be exhausted fast. The typical state minimum is something like $25,000 per person and $50,000 per accident for bodily injury, plus $25,000 for property damage. One crash with two injured people can blow past that $50,000 cap, and then the injured party can come after your personal assets—your savings, your house, your future wages.

Now compare that to what you'd pay for higher limits. The countrywide average auto insurance expenditure was $1,062 per vehicle in 2021 (III – Auto Insurance Facts & Statistics), but that's an average across all coverage levels. The difference between a bare-bones policy and one with $100,000/$300,000 limits plus uninsured motorist coverage is often less than you'd think—maybe $300 to $600 a year, depending on your record and location. That's a small price to avoid the risk of a six-figure judgment.

Full coverage: collision and comprehensive

Beyond liability, there's “full coverage”—which typically means adding collision and comprehensive. Collision pays for your own car when you crash into something, and comprehensive covers theft, fire, hail, and other non-collision damage (Investopedia). About 80% of insured drivers carry comprehensive and 76% carry collision (III – Auto Insurance Facts & Statistics), so you'd be in the majority if you do the same.

But is it worth it on an older car? Here's my rule of thumb: if your car is worth less than about $2,000 and you could replace it without hardship, dropping collision might be rational. But here's the catch—comprehensive and collision also protect you if you're hit by an uninsured driver. Roughly 13% of drivers are uninsured (III – Compulsory Auto Insurance). If one of them totals your car, your own collision coverage is often the only way you get paid, since suing an uninsured driver is usually a dead end. That's a risk I'm not willing to take.

Comparing the two approaches

My verdict: buy full coverage unless you're truly asset-light

Here's a concrete scenario: you're a 30-year-old with a 2015 Honda Civic worth about $8,000, a $50,000 savings account, and a $200,000 mortgage. If you cause a crash that injures two people, a $50,000 bodily injury limit won't cover the likely medical bills—the average claim is $24,211 per person (III – Auto Insurance Facts & Statistics), and that's just an average. You'd be on the hook for the difference, and your savings and home could be at risk. In that situation, I'd argue you're foolish not to carry at least $100,000/$300,000 in liability and uninsured motorist coverage.

But if you're a 22-year-old with a clunker worth $1,500 and no assets beyond your bank account, then maybe minimum liability is a calculated risk you can take—though I'd still suggest adding uninsured motorist coverage if your state doesn't require it, because the other driver's lack of insurance is a real problem (13% uninsured).

And remember, every state requires liability insurance except New Hampshire, which lets you prove you can pay for damages another way (III – Compulsory Auto Insurance). If you're in that camp, you're already accepting a big risk—don't make it worse by skimping on your own protection.

Sources

• III – Auto Insurance Facts & Statistics - https://www.iii.org/fact-statistic/facts-statistics-auto-insurance
• III – Compulsory Auto Insurance - https://www.iii.org/article/background-on-compulsory-auto-uninsured-motorists
• Investopedia - https://www.investopedia.com/terms/i/insurance.asp