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What are limits?


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Question: What are limits?  I think I understand coverages but I hear people say you don’t want your limits exceeded, so what are they referring to? 

Answer:  Limits are the maximum amount that will be paid out for a covered loss.   There are certain parts of your car insurance policy where you choose coverage limits at the inception of your policy, the main ones being your liability coverages.    

Most states require a minimum amount (limit) of bodily injury liability and property damage liability coverage, so that you have coverages for the damages or injuries that you cause to others with your vehicle.  For instance, California requires drivers to have liability limits of 15/30/5. 

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The first two numbers stand for your bodily injury limits (per person and per incident), and the last number is your property damage liability limit. So, with 15/30/5 liability limits, the most your policy will pay out for claims from an auto accident is $15,000 per person for bodily injury with a maximum of $30,000 for all people injured in one incident and then a maximum of $5,000 for any property damage. 

You don’t want your limits exceeded because then you will be left personally responsible for any of the damages or injuries you caused others. 

California’s limits are rather low, and even if you cause only a minor accident you could easily exceed $5,000 worth of property damage to another vehicle or object or more than $15,000 worth of medical expenses for the other driver.  Once your limits have been reached, your insurer will not pay anymore, and you will be asked to pay for any remaining costs.

This is why it’s recommended that you buy as much insurance as you financially can.  Industry suggestions for liability limits are 100/300/50, or more if you can afford it and have assets to protect. (See "Expensive car, cheap car insurance")

Other parts of your policy can have limits too.  For example, uninsured motorist bodily injury (UMBI)  and underinsured motorist bodily injury (UMDBI) both have limits similar to bodily injury liability limits, such as 25/50.

The difference between your liability limits and uninsured and underinsured motorist coverage limits is that UMBI/UNDBI covers you, so the limits show you the maximum amount that you can claim against your own policy.

Personal injury protection and medical payments have single limits, so the amount listed (e.g. $5,000) on your policy is the maximum that portion of your policy will pay out for that benefit if you make a claim for it.

Physical damage coverages of collision and comprehensive have limits as well, but instead of a certain numerical number your policy will pay out to what they determine the car's actual cash value to be at the time of its total loss.  That is unless you have a policy with an agreed amount or stated amount associated with collision and comprehensive coverage claims.

When shopping for insurance, it’s good to remember that limits are referred to as such because your policy benefits are limited by the amount that you chose to carry.

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