Owning an old car can save you a lot of money if it’s paid off. You won’t have car payments to make, and insurance for older cars is much cheaper than it is for new ones.
If your car isn’t worth much, there’s another way to save more money: Buy only liability insurance. It’s about half the cost of a full coverage auto insurance policy.
Liability-only car insurance is the cheapest kind of auto insurance available. It doesn’t cover the value of your car, which isn’t worth much anyway, but protects you if you cause an accident and someone else needs medical care or their car is damaged.
What is liability insurance?
Liability insurance pays other people in a car accident for their bodily injury and property damage if you’re at fault. It can include the driver and passenger of the other cars involved, along with injured pedestrians and the owner of the property where the accident happened.
Property damage liability coverage pays for repairs to the other vehicle, or the value of a totaled car. It also pays to fix damaged landscaping, buildings, and other structures.
If you injure someone in an auto accident, their medical care can get expensive. Having enough bodily injury liability coverage can help provide medical payments coverage for care, hospital stays, rehabilitation, and long-term care.
Without this type of insurance, you could be held liable for the total amount of damages. A home may be damaged or someone could have long-term medical expenses. Without insurance, the injured party could sue you in court to have your wages garnished or personal assets sold.
If you own a home or have savings, you may want enough liability insurance to cover those potential losses.
Even with liability insurance, you’re responsible for paying for any damages above your car insurance policy limit.
Now the kicker is: It doesn’t compensate you or your passengers for medical bills or to repair your car. It's a gamble you would be taking.
Liability insurance rates
Before we get to rates, it’s important to understand the minimum limits of liability car insurance coverage needed per state, and how much you’ll need in relation to your financial circumstances.
How to read coverage amounts
Liability policies are usually listed as a ratio. Per each accident, a 100/200/50 policy would cover:
- Up to $100,000 for the injury of one person.
- Up to $200,000 for the injuries of multiple people.
- Up to $50,000 for property damage.
Those aren’t the minimum coverage amounts but are examples of what a driver may want.
Minimum liability coverage amounts vary by state. States typically require only $20,000 to $30,000 for bodily injury to one person, $50,000 for all others hurt in the same accident, and up to $25,000 for property damage.
Depending on your assets, you may want to buy more liability than the state minimum required. If you don’t have enough coverage, then you could be sued in court to pay the test of the medical, property, and auto damage bills.
You should figure out your net worth before deciding how little liability insurance you need. Even at age 30 or so, you may have more assets than you realize, especially if you own a home or have a retirement account. Those are in jeopardy should you be sued to your at-fault accident.
Liability-only car insurance is the legal minimum amount of car insurance needed to drive a car legally in 22 states.
In 28 other states and Washington, D.C., drivers must also have one or both of the following:
- Personal injury protection/medical payments. This policy covers your medical bills and those of your passengers, regardless of who is at fault.
- Uninsured motorist coverage. If the other driver is at fault but doesn’t have liability coverage, this coverage pays for your medical and car repair bills.
N.H., Virginia are different
Of the 50 states, New Hampshire is the only one to not require drivers to have liability insurance. In fact, car insurance isn’t mandatory there. Drivers who cause accidents must pay for the damage themselves, meaning they either buy auto insurance or cover the costs themselves.
It’s legally optional in New Hampshire, but if purchased the minimum requirements are 25/50/25, meaning $25,000 per injured person, $50,000 per accident in bodily injury coverage, and $25,000 for property damage.
Virginia is another odd duck. In lieu of its minimum 25/50/20 coverage in liability insurance, drivers can pay the state $500 to drive uninsured. You’ll still be financially responsible for all bodily injuries and property damage that you cause.
Here’s the best part of all of this: Liability-only insurance is probably the cheapest insurance you’ll find.
Liability insurance covers bodily injury and property damage, as we’ve explained. If your state requires it, extra medical coverage called personal injury protection, or PIP, can be added. Some states may also require uninsured/underinsured motorist insurance.
But for basic liability-only insurance with bodily injury and property damage coverage, the average cost in America is $538 a year, according to a report from the National Association of Insurance Commissioners, or NAIC. The report from December 2017 is NAIC’s most recent data.
That amount is more than half of the average annual auto insurance premium of $1,009 in the United States when collision and comprehensive coverage are included, according to the NAIC.
Keeping costs down
Insurance rates are based on many factors, so it can pay to shop for the best price and coverage.
Some things that can lower the cost of liability-only insurance, or any type of auto insurance, for that matter, include:
- Owning an older car
- Owning a smaller car
- Being at least 25, when rates start dropping
- Having good driving history
- Having a good credit score
- Being married
- Being female
- How much you drive
- Where you live
- Having a low deductible
- Bundling with home insurance
Liability insurance companies
Shopping for auto insurance is something consumers should do every year when their policy comes up for renewal. It can be an easy way to save hundreds of dollars.
When shopping for liability-only insurance, make sure you’re meeting your state’s minimum requirements. Depending on your assets, you may want more coverage. And make sure it’s for personal use, since some companies focus on business clients.
Here are four liability insurance companies that are worth checking out:
State Farm sells many types of coverage for auto insurance, including liability-only insurance.
One of its top features is that it has local insurance agents, meaning you can work with an agent in person for all of your insurance needs. If you’re looking to bundle your insurance, State Farm can be a good choice with the many types of insurance it sells.
State Farm has some of the lowest average insurance rates for most demographics, according to a report by U.S. News & World Report.
State Farm has been in business since 1922 and currently has more than 58,000 employees and more than 19,000 independent contractor agents servicing 83 million policies and accounts in the U.S.
For U.S. military members, the insurance company USAA is known for offering inexpensive insurance.
It sells liability-only auto insurance and is known for having relatively low premiums and offering high-risk auto insurance.
USAA received the highest ranking of car insurance companies by U.S. News & World Report. A lot of that was due to high customer satisfaction, such as when filing a claim.
Geico sells liability-only auto insurance, and it recommends having the same level of bodily injury coverage for all of your cars so that your personal assets aren’t jeopardized.
Geico finished second behind USAA in the U.S. News survey rating of claim response, customer service, and value. Geico offers good value for the money and has rates that are lower than average, the survey found.
All of the above companies, and many more, offer online auto insurance quotes. An easier way may be with an aggregator such as Gabi that shops for insurance policies for you and gives you free quotes.
It compares multiple offers from top insurance companies by pulling new quotes to match your current coverage without any manual entry. You don’t have to search multiple websites.
You start by sharing your current policy details with Gabi through a PDF or account credentials. It shows you the best rates and you pick the quote you want to learn more about.
Gabi is a licensed insurance broker in all 50 states, including Washington, D.C.
What about collision and comprehensive?
Before buying liability-only insurance, you should realize what you’re not getting with such a policy. Collision and comprehensive coverage are typically the two largest parts of a car insurance bill.
Here’s what they cover, and what won’t be covered under a liability-only policy:
- Collision: Pays for damage to your car if you’re at fault, or if no one is at fault.
- Comprehensive: Pays for damage by acts of God such as weather, animals, or vandalism.
Actual cash value of your car
One last important step in deciding if liability-only insurance is right for you is knowing the actual cash value, or ACV, of your car. That’s how much it would cost to buy the same car today.
And we don’t mean a new car. If your car is 15 years old, don’t expect it to be replaced under your full insurance coverage with a new car and a new car price. Your car’s value has likely fallen over the years.
If your car is a total loss in an accident, then it costs more to repair your car than its ACV. Instead of repairing it, your insurer will give you a check for the car's ACV.
When it was new, it had a high ACV, and insurers would have to spend more money to repair it before declaring it totaled.
Suppose the $20,000 car you bought years ago is now worth $5,000 in ACV. If your car is damaged today, your insurance company would pay you $5,000 to repair the car, minus your deductible. The same amount applies if the car is stolen.
Having comprehensive and collision coverage on such a car can be fruitless because paying for that coverage and your deductible can be worth more than the car.
Let’s say your old car is only worth $1,200 and you have a $500 deductible. Your ACV has now fallen to $700. Comprehensive and collision insurance can cost $700. Your car is now worth nothing in an insurance payout, based on what you paid for the premium and deductible.
That’s a clear sign that it’s time to drop comprehensive and collision coverage and to have liability insurance only on your old car.
Pros and Cons
- Liability car insurance is least 50% cheaper than also having comprehensive and collision insurance.
- It covers medical and property damage costs to other drivers and their vehicle’s occupants.
- You and your car aren’t covered.
- It is illegal in almost every state to drive without it.
- You could lose your assets without it.
- If your car is totaled, you have to pay yourself to buy a new one.
The bottom line
If your car is old and isn’t worth much, buying liability-only auto insurance can save you a fair amount of money.
That savings can be put aside to save for a new car, which you’ll likely need someday. Or better yet, buy a used car at a lower price and use that savings to pay for auto insurance.