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At opposite ends of the car insurance spectrum are full Coverage and Liability auto insurance. There are many steps between these opposites and there are many levels of full coverage and liability only. However, car insurance can best be understood by first fully understanding the differences between the two.

Liability Only Car Insurance

Car insurance is regulated at the state level and each state has its own laws concerning the minimum liability car insurance coverage that is required to legally drive your vehicle. In Illinois it is 20/40/15 (20,000/40,000/15,000), but what is liability coverage?
   * It is insurance that covers damage you cause to other people (outside of your car) and their property.

So what does your agent mean when they say you have to have at least 20/40 coverage?

  •      Insurance is expressed in three parts.

The first number refers to the maximum amount your insurance company will pay for injuries to a single person, per accident.
The second number refers to the maximum amount your insurance company will pay for all injuries in a single accident.
The third number is the maximum amount your insurance company will pay for property damage, per accident.

  •     So in Illinois that translates to $20,000 of bodily injury coverage per victim; $40,000 of bodily injury coverage per accident regardless how many victims, and $15,000 of property damage per accident.

        When choosing your coverage amount keep in mind that if you were in an accident that caused $100,000 in bodily injury damage (an amount easily reachable at today's medical costs) your insurance will only cover the first $20,000 for the other $80,000 the injured person could come after you! Potentially everything you have worked for i.e. your home, your savings, all your current and future assets could be at risk. Your entire financial life could change by accidently running a stop sign. So keep that in mind when you’re looking to save that $15-$20 a month on your car insurance. Is it worth it?

Full Coverage Car Insurance

What is known as "full coverage" is actually two forms of coverage on top of liability - comprehensive and collision coverage. You can choose to have comprehensive coverage without collision, but not collision without comprehensive.

Comprehensive coverage covers damage to your vehicle that is caused by something other than a collision. For example: theft, weather damage, fire, etc. also covered under this is accidents that involve an animal i.e. a deer. So basically comprehensive is designed to cover things that are likely not your fault and out of your control.

Collision coverage covers damage to your car in the event of accident. It is designed to "make you whole" as far as your investment in your vehicle is concerned. It will repair your vehicle to its condition before the accident or pay you for the estimated amount of damage. Keep in mind your "full coverage" will be dropped if you choose to not repair the vehicle to its condition before the accident.

If you have a loan on your car you are required by the finance company to carry full coverage to protect their interest in that vehicle till it is paid off.

Too many people look at insurance as an annoying expense required by the state. In reality, it is an investment that protects your hard earned money and assets.

Posted 3:44 PM  View Comments

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