Auto Insurance Liability Limits Explained

Automobile insurers hardly ever offer infinite coverage. Usually, the schedule specifies the maximum amount they are prepared to pay for each peril. You need to be aware of the constraints and consider if it is acceptable or you want to do something about it. You can increase car insurance liability limits to a more comfortable level but this will raise premium too.

A carrier agrees to indemnify anyone who may have a legitimate auto liability claim against their policyholders. However, there is usually a specified maximum payable. Each state determines the lowest amounts that must be purchased. But motorists are advised to choose more comfortable figures to reduce the chance of it being insufficient when it is needed.

Ceilings of a third party cover are explained below.

Bodily Injury Liability Limit Per Person: This is the highest amount a carrier is prepared to pay per person in each accident that was your fault.

Bodily Injury Limit Per Accident: This is the ceiling of compensation for the medical expenses of everyone in each accident you caused.

Property Damage Liability Limit: This is the largest amount a policy will pay for property damages of third parties per incident.

Usually, you see these figures expressed as 25/50/25. This means that the maximum for single injured person is $25,000, total payout for all the injuries is $50,000 and total property damage is $25,000.

What Are the Recommended Levels?

Usually, state required basic policy isn’t enough to meet today’s expensive medical costs and pay for damages to decent cars. It keeps you legal and nobody can argue with you if you don’t have enough money to pay for a better cover. However, if you have a home and other assets to protect from lawsuits you should make sure that you buy sufficient. Let’s have a look at an example below.

If several people suffered and first one claims $20,000, the second one $15,000 and the third one $10,000 you will have enough coverage since nobody asked more than single ceiling and the total ($45,000) is still less than the maximum of $50,000. If one person claimed more than the $25,000 or the final figure is higher than $50,000 you would have problem since you are expected to make up the difference out of pocket.

That is why it is important to buy sufficient and most experts advise at least a 100/300/100 break down. The higher the better and you may be able to get the extra at a minimal additional premium if you shop around.

You should be comfortable with the provisions of auto insurance and it shouldn’t stretch budget beyond your means. Generally, carriers are happy to increase the level of protection up to a point. Once that point passed it becomes really expensive and it may only be worth if you are a rich person with an expensive house and other assets.

Furthermore, even a full coverage would have ceilings to be aware of. For example, a company would only pay current market value of an automobile if it were totaled. This could be problematic, especially if you have a large outstanding auto loan to pay off. In such cases, you may need to consider buying GAP.

That is why it is important to have a good look at the provisions in the light of what might happen. Otherwise, you may be too late when you realize after a claim that it isn’t up to the task of meeting all the losses.

It is worth pointing out that underwriters are very generous when you keep adding. The logic is simple. Most accidents are below enforced figures and everyone has it anyway. A chance of a much bigger loss is very low. Hence additional premium cannot be high considering the likelihood is low. So, always get quotes for different levels and see the cost before deciding.

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