Every auto insurance policy has limits, the maximum amounts your insurer will pay for different types of claims. Understanding these limits is crucial because they determine how much financial protection you actually have. A policy with the wrong limits could leave you personally responsible for thousands of dollars in damages, while over-insuring wastes money on protection you do not need.
What Are Policy Limits?
Policy limits are caps on how much your insurance company will pay for a covered claim. Once your claim reaches these limits, your insurer stops paying and you become personally responsible for any remaining costs.
Different types of coverage have different limits, and these limits work independently. Your liability limits are separate from your collision limits, which are separate from your comprehensive limits. Understanding how each works helps you evaluate whether your current coverage is adequate.
Split Limits Explained
Most auto insurance policies use split limits for liability coverage, expressed as three numbers like 100/300/100. This format confuses many people, but it is straightforward once you understand what each number represents.
Reading the Numbers
The three numbers in split limits represent thousands of dollars:
- First number: Maximum payment for bodily injury to one person. In 100/300/100, that is $100,000 per person.
- Second number: Maximum total payment for all bodily injuries in one accident. That is $300,000 regardless of how many people are injured.
- Third number: Maximum payment for property damage in one accident. That is $100,000 for damage to other vehicles, buildings, or property.
How Split Limits Work in Practice
Imagine you cause an accident that injures three people with the following medical expenses: $80,000, $120,000, and $60,000. With 100/300/100 coverage:
- Person 1 receives $80,000 (their full expenses, under the $100,000 per-person limit)
- Person 2 receives $100,000 (capped at per-person limit, leaving $20,000 unpaid)
- Person 3 receives $60,000 (their full expenses, under the per-person limit)
- Total paid: $240,000 (within the $300,000 per-accident limit)
In this scenario, you would be personally responsible for the $20,000 that exceeded Person 2's per-person limit, even though you did not hit the per-accident maximum.
Now imagine a more severe accident with four people injured at $100,000 each. Your per-person limits would cover each individual, but the per-accident limit of $300,000 would cap total payment. You would be liable for the remaining $100,000.
Combined Single Limit: The Alternative
Some policies offer combined single limit (CSL) coverage instead of split limits. A CSL policy has one number that applies to all liability claims from a single accident, both bodily injury and property damage combined.
For example, a $300,000 CSL policy would pay up to $300,000 for any combination of bodily injury and property damage from one accident. If you caused injuries totaling $250,000 and vehicle damage of $40,000, the $290,000 total would be fully covered.
Comparing Split Limits and CSL
CSL policies offer more flexibility because there is no per-person cap. In the earlier example where one person had $120,000 in medical bills, a CSL policy would cover the full amount as long as total claims stayed under the limit.
However, CSL policies are often more expensive and less common for personal auto insurance. They are more frequently used in commercial policies where claim patterns are different. Most personal auto policies use split limits.
Limits for Other Coverages
Liability coverage gets the most attention for limits, but other coverages have limits too.
Collision and Comprehensive Limits
For collision and comprehensive coverage, your limit is effectively your vehicle's actual cash value (ACV). The insurer will pay up to what your car is worth, minus your deductible. If your car is worth $15,000 and suffers $20,000 in damage, it is a total loss. You will receive $15,000 minus your deductible, and keep the salvage if you choose.
Medical Payments and PIP Limits
Medical payments coverage and personal injury protection (PIP) have specific dollar limits you choose when purchasing coverage. Common limits range from $1,000 to $100,000 or more. These limits apply per person or per accident depending on your policy and state.
Uninsured/Underinsured Motorist Limits
These limits follow the same format as liability limits. If you have 100/300 UM/UIM coverage, you have up to $100,000 per person and $300,000 per accident for injuries caused by uninsured or underinsured drivers. Some states require these limits to match your liability limits.
State Minimum Limits: Starting Points Only
Every state sets minimum liability limits that drivers must carry. These minimums vary significantly:
- Some states require only 15/30/5 or 25/50/25
- Others require 50/100/25 or higher
- New Hampshire does not require liability insurance at all (though you are still liable for damages)
State minimums were often set decades ago and have not kept pace with rising medical costs and vehicle values. A 25/50/25 policy made more sense when hospital stays cost a fraction of today's prices. Now, a serious injury can easily generate medical bills exceeding $100,000.
Meeting your state's minimum keeps you legally compliant, but it may not adequately protect you financially. If you cause an accident with damages exceeding your limits, you are personally responsible for the difference. That could mean wage garnishment, liens on your property, or even bankruptcy in extreme cases.
Choosing the Right Limits
The right limits balance adequate protection against the cost of premiums. Here is how to think about this decision:
Consider Your Assets
Your liability limits should at least cover your net worth. If you have $200,000 in assets and carry only 50/100 liability coverage, a serious accident could put everything at risk. Someone with significant assets to protect should consider 250/500 or higher liability limits.
Think About Potential Damages
Modern medical care is expensive. An ambulance ride alone can cost $1,000 or more. A few days in the hospital with surgery could easily exceed $100,000. If you seriously injure multiple people, costs can reach into the hundreds of thousands.
Property damage has also increased. New vehicles commonly cost $40,000 to $60,000 or more. Hitting multiple vehicles or damaging a building can quickly exceed lower property damage limits.
Factor in Cost Differences
Here is the good news: increasing your limits often costs less than you would expect. Moving from 50/100/50 to 100/300/100 might only add $100 to $200 per year to your premium. For many people, that modest increase buys significantly better protection.
The cost difference between 100/300/100 and 250/500/100 is often even smaller as a percentage because you have already passed the highest-risk coverage levels.
Consider an Umbrella Policy
If you have substantial assets, an umbrella policy provides additional liability protection above your auto and home insurance limits. A $1 million umbrella policy typically costs $200 to $400 per year and kicks in after your auto policy limits are exhausted.
Umbrella policies require minimum underlying coverage, usually 250/500/100 or similar. But for those with significant assets, they provide cost-effective protection against catastrophic liability claims.
Limits and Premium Costs
Insurance pricing is not linear. Doubling your limits does not double your premium. In fact, the cost of higher limits increases at a decreasing rate.
This happens because most accidents involve relatively modest claims. The insurer pays out frequently at lower amounts but rarely faces claims near higher limits. The probability-adjusted cost of covering $100,000 to $300,000 is less per dollar than covering $0 to $100,000.
This pricing structure means you often get more protection per dollar at higher limits. It is one of the few areas where buying more actually represents better value.
When Limits Apply
Understanding when your limits apply helps you know what protection you actually have:
- Per occurrence: Limits apply to each accident separately. If you have two accidents in a policy period, each gets the full limit.
- Per policy period: Some coverages, like medical payments, may have a maximum for the entire policy term.
- Stacking: In some states, you can stack uninsured motorist limits across multiple vehicles on your policy, effectively multiplying your protection.
Reviewing Your Limits
Your coverage needs change over time. Review your limits annually and after major life changes:
- When you acquire significant assets (home purchase, inheritance, increased savings)
- After income increases that give you more to protect
- When you add teen drivers who increase accident risk
- After moving to a new state with different requirements
- When vehicle values change significantly
The Bottom Line
Policy limits determine the ceiling of your protection. Choosing appropriate limits is not about meeting legal minimums. It is about ensuring you are adequately protected against the financial consequences of an accident.
Most financial advisors recommend liability limits of at least 100/300/100, with higher limits for those with more assets. The relatively modest cost of increased limits provides peace of mind and genuine protection against potentially devastating financial exposure.
Take time to understand your current limits and evaluate whether they still make sense for your situation. A conversation with your insurance agent about your coverage options costs nothing and could prevent significant financial hardship down the road.