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How do automotive insurance policy limits work?

On Behalf of | Jul 7, 2022 | Motor Vehicle Accidents |

You have made payments to a car insurance company since you first purchased a vehicle. Whether you got your license and first car when you turn 16 or later in your twenties, you have probably paid thousands of dollars in premium costs to your insurance provider without ever making a sizable claim against your policy.

When you don’t have much need for your insurance, you may not truly understand how it works. For example, you might think that you have more protection than you do on your own policy or through the policy of another driver when you don’t understand the language used to describe insurance coverage.

When it comes to covering costs after a collision, policy limits play a major role in how much help someone receives. How do automotive policy limits work?

Every policyholder chooses their own coverage

When you purchase or renew your insurance policy, you have to determine the limits for your coverage. The higher the limit, the more costs people can potentially claim against your coverage. The insurance company will never pay for losses that exceed the amount of coverage on a policy.

The policy limit is a firm maximum amount of compensation. It’s important to recognize that sometimes, you will have to share that limited coverage with someone else. In crashes where more than one person get hurt, each individual will only receive a portion of the total bodily liability coverage for that crash, which could be as low as $30,000.

How low limits hurt you

On your own policy, the negative impact of a low policy limit is obvious. If the other party has injuries or vehicle repair expenses that exceed your policy limit, there will be uncovered losses and the possibility of a financial claim against you as the driver at fault for the crash.

In a wreck caused by another driver, their policy limit might determine how much coverage you have access to, meaning that you could suffer because of their irresponsible behavior. You can diminish this risk somewhat by investing in uninsured and underinsured motorist coverage, which can supplement whatever you receive from the other driver’s policy after a crash.