Is Liability-Only Auto Insurance Right for You?

Get the facts before downsizing to a liability-only auto insurance policy.

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Your four-door sedan lost its new-car smell, oh, about 50,000 miles ago. And yet you’re still shelling out as much for insurance as you were the day that you drove it off the lot. You might be considering saving money by dropping down to a liability-only policy. But is that a good idea?

The pros: You may be able to reduce your insurance costs by 50 percent or more—saving about $500 a year, according to the National Association of Insurance Commissioners, a standard-setting organization.

The cons: You’ll need to have a fair amount of cash stashed. Why? If your car is in an accident, a big rock falls on it, or you hit a deer, you’ll be responsible for paying for any repair work—or a replacement if the car is totaled. Bear in mind that if you have a car loan, you typically can’t carry liability-only coverage.

The bottom line: If what you currently pay for collision and comprehensive protection each year is more than 10 percent of the car’s value (go to kbb.com and average the private-party and trade-in values) and if you have reserve funds, drop your coverage to liability, advises Liz Weston, the author of The 10 Commandments of Money ($16, amazon.com). For example, if your car’s value is $5,000 and your insurance costs exceed $500, call your provider now. And put those newfound savings toward your next set of wheels.

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