Insurance 101: Understanding Your Auto Policy Limits

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Insurance 101: Understanding Your Auto Policy Limits

Your coverage limits identify the maximum amount of money your auto insurance policy will pay following a covered loss. Once that limit is reached, you will be responsible for paying any additional costs out of pocket.

If you’ve ever been in an auto accident, you understand just how quickly the costs can start to add up. This is why it is so important to have a solid understanding of how auto insurance coverage limits work and why you should review your policy occasionally to ensure you are comfortable with the limits you’ve selected:

What Do My Auto Limits Cover?

Auto Liability Coverage Limits

Liability coverage is the only auto insurance coverage that is required by law 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 are at fault for an accident. It’s broken down into two parts:

  1. Bodily Injury – This coverage helps pay for covered medical expenses, lost wages, compensation for pain, and more for the other driver and their passenger(s).
  2. Property Damage – This coverage helps pay for damages to the claimant's property.

Again, auto liability coverage helps pay the cost described above for another person or people that you injure with your car. This could be a driver in another car, pedestrians or unrelated passengers in your own car.

Auto Liability Coverage limits can be written out in three numbers, such as 100/300/50. This means you have a $100,000 limit per person for bodily injury in an accident, a $300,000 total limit per accident for bodily injury, and a $50,000 limit per accident for Property Damage.

Example Scenario

To put things into perspective, let’s lay out an example that will show how some real-life numbers would pan out:

Say you cause an accident and the other driver and passenger are both injured. You only carry the state required minimums for Liability Coverage in your state which is $25,000/$50,000/$25,000. The driver had $20,000 worth of covered damages, and the passenger had $15,000. Both of these amounts stay under your $25,000 limit per person and your $50,000 limit for the accident (You caused $40,000 total.) The other car sustained $10,000 of damage, so you’re under your Property Damage limit too. With this scenario, you shouldn’t have to pay out of pocket.

Now, let’s take that same accident, but add a third passenger to the equation. Let’s say each of the passengers sustained $25,000 worth of covered damages. The total amount of the accident is $75,000, but your limits only pay up to some combination of $50,000 to all three passengers. This means you would be liable for $25,000 worth of damages out-of-pocket. This time, the other vehicle sustained $30,000 worth of property damage. Your $25,000 Property Damage Limit leaves you on the line for $5,000. In this scenario, you would be stuck with a whopping $30,000 to pay for the damages after your insurance covers their part.

Uninsured Motorist Coverage Limits

Uninsured Motorists coverage helps to pay for your injuries and damages you incur from an accident caused by an uninsured motorist. It pays for things like lost wages, medical costs, etc. Some states require this coverage as well, and while others do not, it ensures you aren’t left with outrageous medical bills if you are hit by an uninsured driver.

These limits are written similarly to the Liability Coverage limits. They represent the per person limit followed by the per accident limit, so it would look like 100,000/300,000.

Underinsured Motorists

Sometimes, you might get into an accident with a driver who doesn’t have adequate coverage limits to pay for your expenses. Here at Rockford Mutual, we combine both Uninsured and Underinsured Motorists Coverage into one! You’ll never be stuck with a hefty bill so long as you carry adequate coverage.

Collision Coverage Deductible & Limits

Collision coverage is an optional coverage that can be added to your auto policy to provide coverage for damage caused by a collision with another vehicle, a collision with an object, or a single-car accident that involves rolling or falling over.

While collision coverage does have a limit, it is handled a bit differently. Your collision coverage limit is typically the actual cash value of your vehicle (its value minus depreciation). This type of coverage also includes a deductible, which is the amount you pay before your coverage kicks in to help pay for the claim. You can typically choose from several deductibles such as $250, $500, or $1,000. Just keep in mind the value of your vehicle when determining your deductible amount.

Comprehensive Coverage Deductible & Limits

Comprehensive coverage is also an optional coverage that can be added to your auto policy to provide coverage for damage to your vehicle that is not caused by a collision, such as theft, animal strike, vandalism, fire, falling objects and more.

Comprehensive coverage functions the same as Collison coverage when it comes to the included limit and deductible. The limit on comprehensive coverage is typically the actual cash value of your vehicle, and the deductibles are usually $250, $500, or $1,000.

How Do My Limits affect My Rate?

Typically, increasing your auto coverage limits will increase your premium, and decreasing limits will decrease your premium. In regards to your deductible, the higher of a deductible you select, the lower your premium will be. This is because you are retaining more of the financial risk when your deductible is higher.  

However, you may not want to lower 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 out of pocket for an accident.

How Often Should I Review My Limits?

Life changes, quickly. It’s best to review your insurance policy every six to twelve months to ensure you are comfortable with the amount of risk you are willing to take on. 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.

Your local RMIC Agent can help you decide the best option for your limits, deductibles and more:

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Amy Casey
Social Media & Communications Specialist
Amy joined Rockford Mutual in January of 2017 with an Associates Degree in Marketing. Amy has a great understanding of insurance in general as she has obtained her Associate in General Insurance designation.