Explaining Automobile Insurance: Part I – Liability Coverage

I am never surprised to meet someone who does not fully understand their car insurance policy. Frankly, I didn’t understand my own until I became a plaintiff’s personal injury attorney. However, in order to make smart financial and consumer decisions as well as protect yourself and your loved ones in the event of disaster, it is important that you understand these complex insurance contracts.

“Bodily Injury / Liability”: When you purchase car insurance, you are always purchasing, at a minimum, “bodily injury / liability” insurance coverage. Illinois law requires that drivers carry a minimum of $20,000 per person/$40,000 per occurrence in liability insurance coverage. (625 ILCS § 5/7-203) This coverage protects you in the event you are at fault for a collision and you cause someone injury. Not only are you purchasing a right of “defense”, meaning your insurance company will retain an attorney to defend you, you are also purchasing a right of “indemnification”, meaning it will also pay out any settlement or judgment, up to the per person/per occurrence limit you purchased. By purchasing this coverage, you are protecting yourself and the wealth you have built up over your lifetime against a lawsuit should you negligently injure someone.

“Per Person / Per Occurrence”: When you purchase bodily injury / liability insurance, it is most always sold in “$X per person / $Y per occurrence” bundles. The “per person” limit means that if you are at fault and injure only one person, your insurance company will pay any settlement or verdict up to the maximum of the “per person” limit. However, should you be at fault and injure multiple people, your insurance company will pay settlements or verdicts for all of the victims collectively only up to the “per occurrence” limit. For example, if you purchase a state-minimum “20/40 policy” and rear end a car with only one person in it, and his or her damages total $25,000, your insurance company will pay up to $20,000 to settle your case, or the first $20,000 of any judgment against you. However, should you rear end a car with three people in it, and they suffer damages of $25,000 each, your insurance company will only pay up to $40,000 total to settle all three cases, or the first $40,000 of any judgments against you, rather than $20,000 per case or $60,000 total.

How much bodily injury / liability insurance should you purchase? You should always have more insurance coverage than your net wealth. If you do not, you run the risk that someone you might negligently injure could refuse to accept a settlement for the limits of your insurance policy and proceed against your personal assets. Add up the value of the things you own: your house, your car, your savings, etc. Consider how often you drive, and how congested the area you drive in is. Are you putting yourself, and the fruits of years of your hard work at risk? Don’t let a small problem become a life-changing problem because you failed to protect yourself ahead of time.