Coverage limits are the maximum amounts an auto insurance policy may pay toward a covered claim. If the costs from a claim exceed the coverage limit, the policyholder may be responsible for the remaining amount out of pocket.
How do coverage limits work?
When a driver purchases an auto insurance policy, they choose coverage limits for each type of coverage included in the policy. According to the Insurance Information Institute, different types of coverage carry separate limits, and drivers should consider their financial exposure when choosing how much coverage to carry. For example, liability coverage limits are often shown as three numbers, such as 25/50/25, which represent:
- $25,000 per person for bodily injury
- $50,000 per accident for bodily injury
- $25,000 per accident for property damage
If damages from an at-fault accident exceed these limits, the driver may be personally responsible for the difference. For instance, if damages total $40,000 but the property damage limit is $25,000, the driver may owe the remaining $15,000 out of pocket.
What types of coverage have limits?
Most types of auto insurance coverage carry limits, including:
- Liability coverage: Limits apply per person, per accident, and for property damage
- Collision and comprehensive coverage: Payouts are typically limited by the actual cash value of the vehicle
- Medical payments coverage and personal injury protection (PIP): Limits may apply per person or per accident, depending on the policy and state
- Uninsured and underinsured motorist coverage: Limits may mirror liability limits, depending on the state and policy
How should you choose coverage limits?
Choosing the right coverage limits depends on factors such as the value of your assets, your vehicle, and the minimum requirements in your state. Higher limits may offer more financial protection but may also result in a higher premium. For more context on how limits relate to your auto insurance policy, read the Infinity Insurance Agency, Inc. (IIA) glossary page on policy limits.
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IIA works with over 20 insurance carriers to help drivers find a personal auto insurance policy that fits their needs and budget. Our experienced, Spanish-bilingual agents can help you understand your coverage options.
Call 1-855-478-3705 or get a free quote online today.