Auto Insurance Coverage Limits Explained

2019 03 26 blog couple driving in car

Coverage limits are the maximum amount a car insurance policy will pay after a covered accident. Once that limit is reached, you’re responsible for paying the rest of the cost out of your own pocket.

That can be a hard pill to swallow if you are in a large accident where bills add up quickly. That's why it’s important to understand exactly how auto insurance coverage limits work and to review your policy occasionally to make sure you’re comfortable with the limits you have. Some prep up front can help save you from the headache and uncertainty after an accident. This article will help explain the different coverage limits at work in a typical auto insurance policy.

Liability coverage limits

Liability Coverage is required in every state. This coverage helps you pay for property damage, medical expenses, and other damages to another person and their vehicle that you are legally obligated to pay when you cause an accident.

It’s broken down into two parts: Bodily Injury and Property Damage. Bodily Injury helps pay for covered medical expenses, lost wages, compensation for pain, and more for another driver and their passengers. Property Damage helps cover damages to, you guessed it, their property.

Auto liability coverage limits are typically written out as three numbers like 25/50/25. That means you have a $25,000 limit per person for Bodily Injury in an accident, a $50,000 total limit per accident for Bodily Injury, and a $25,000 limit per accident for Property Damage.

Examples of liability coverage limits

Let’s check out an example to see some real-life numbers play out. Say you cause an accident and the other driver and passenger are both hurt. You have the Missouri state required minimums for Liability Coverage which is $25,000/$50,000/$25,000. The driver had $20,000 worth of covered damages, and the passenger had $15,000. Both these amounts stay under your $25,000 limit per person and your $50,000 limit for the accident. Their car had $8,000 of damage, so you’re under your Property Damage limit too. That means you shouldn’t have to pay anything out of pocket.

Now, let’s pretend that in the same accident, there were actually three people injured and each had $25,000 worth of covered damages. The total amount for the accident is $75,000, but the most your insurance could pay would be some combination of $50,000 to all three people. That means you could have to find $25,000 out-of-pocket to pay for the uncovered medical expenses and damages for the people who were injured. This time, the car was new and had $30,000 worth of damage. Your $25,000 property damage limit leaves you on the line for $5,000. That means for this accident, you may have to find a grand total of $30,000 to pay for the damages after your insurance does their part.

In that second case, higher Liability Coverage limits would have come in handy and would have saved you some out-of-pocket expenses.

Uninsured motorist coverage limits

Uninsured Motorist Coverage steps in to help pay for your injuries and damages when an uninsured motorist causes an accident. It pays for things like medical costs, lost wages, etc.

Some states, like Missouri and Illinois, require you to carry this coverage. Even if your state doesn’t require it, you’ll want to consider Uninsured Motorist Coverage. It will help save you from getting stuck with large bills if you are hit by one of the 13% of drivers who don’t have insurance.

Uninsured Motorist Coverage limits are written similarly to the Liability Coverage limits. They show the per person limit followed by the per accident limit, so that it would look like 25,000/50,000.

You may be wondering about coverage for accidents when you are hit by a driver who doesn't have auto coverage limits high enough to pay your expenses as well. Here at Say, we combine both Uninsured and Underinsured Motorist Coverage into one. That’s more coverage and fewer decisions for you. Simple, just how we like it.

Uninsured motorist property damage limits

Uninsured Motorist Property Damage (UMPD) will help cover damages to your car if you’re hit by someone without insurance and the accident is their fault.

If you have Collision Coverage, you should be covered if the driver who hits you is insured or not. But if you don’t have Collision Coverage, this is a coverage you’ll want to look into.

The coverage limits are written out as a single number showing the max amount paid out per accident. Typically, it is either a $10,000, $15,000, or $25,000 limit.

Coverage limits and your insurance rate

Typically, increasing your auto coverage limits will increase your monthly rate, and decreasing limits will decrease your rate. That’s because if you are on the line for more money in the event of an accident, your insurance company sees you as less of a risk to insure.

However, you may not want to decrease up your limits just to lower your rate. You should carefully look at your finances and how much you could afford if you ever need to pay for an accident. The Wall Street Journal suggests looking at the total value of your assets to make sure you’d be covered for an accident.

Reviewing your policy

Because life changes fast, it’s a good idea to review your coverage every six to twelve months. Checking your coverage limits to make sure you’re comfortable with them is a key part of your policy to check. Increasing your auto insurance coverage limits will likely increase your premium, but that’s a small price to pay if it saves you from paying thousands after an accident.

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Posted May 3, 2019 in insurance know-how.