Choosing Your Liability Limits: Auto Insurance
What are liability limits? Liability limits, as they pertain to auto insurance, are the maximum amounts of money that your insurer would be legally obligated to pay on your behalf if you cause bodily injury or property damage to another party. Typically, defense costs are paid in excess of your liability limits; the limits themselves are reserved for judgments and awards to the injured party. There are two common methods of insuring yourself against automobile liability claims against you:
“Split limit” Coverage: Expressed on your policy as three separate amounts; bodily injury per person/ bodily injury per occurrence/ property damage, typically separated by a slash “/”.
Example: $250,000 BI per person/ $500,000 BI per Occurrence/ $100,000 PD
Under this method, the insurer would pay up to $250,000 if you caused injury to one person, up to $500,000 for all bodily injury you cause across multiple people, with no more than $250,000 being paid to any one person, and up to $100,000 for the property damage you cause. The most this method would pay out is $600,000 in this example- $500,000 in bodily injury and $100,000 in property damage.
“Combined Single Limit- CSL” Coverage: Under this method, bodily injury and property damage are covered with the same pool of funds. You would have one amount that would cover all liability, either bodily injury or property damage:
Example: $500,000 CSL
In this example, the most that would be paid out for any combination of property damage, or bodily injury, regardless of the amount of injured parties, would be $500,000. If you cause $300,000 in property damage, this method would pay more than split limit. However, if you caused $250,000 in damage to two people, and $100,000 in property damage, the split limit method would cover you for an additional $100,000 that the CSL method would not.
Why is it important to purchase good limits of liability?
Liability limits can vary drastically from policy to policy. Each state has a “state minimum” limit of liability. Most minimums are $25,000 per person, $50,000 per occurrence, and $25,000 for property damage. The example above of $250,000/$500,000/$100,000 is almost 10x the amount of insurance as is required by law. Why pay more for better limits? Because ANY DAMAGE YOU CAUSE IN EXCESS OF YOUR LIABILITY LIMITS IS YOUR FINANCIAL RESPONSIBILITY!! $25k/$50k/$25k may stop you from getting a ticket if you are pulled over, but if you rear-end another vehicle, and the driver cannot return to work, and you are sued for $250,000, the remaining $225,000 bill will come to you. You still caused the damage. You are still responsible. However, your insurance company is only backing you up to $25,000. In today’s day in age with distracted driving running rampant, increased medical costs, and personal injury attorneys on every corner, it is not hard to cause $250,000 worth of damage or MORE!
If you have cut-rate coverage, you may find yourself in a dangerous situation. Courts can issue liens against you, garnish your wages, and seize assets to help pay the plaintiff’s award. That’s why we recommend as much coverage as you can qualify for. Ask one of our agents about adding an affordable umbrella policy on top of your auto insurance to add an extra $1,000,000 or more in liability insurance, and live to fight another day!
Stay smart out there. Be sure to ask your agent at Aspire Insurance Agency or elsewhere what your liability limits are if you do not know.