Coverage limits

In plain English: a coverage limit is the maximum amount an insurance policy will pay for a particular type of loss. Once the limit is reached, the insurer's obligation to pay under that coverage usually ends, even if the real losses are higher.

The different limits on one policy

A single car insurance policy often has several limits, each tied to a different coverage:

• Liability limits for injuries and property damage the policyholder causes to others
• Per-person and per-accident limits, which cap what one injured person, and all injured people together, can receive
• Medical, PIP or accident benefit limits on your own policy
• Uninsured and underinsured motorist limits
• Physical damage coverage, which is usually capped at the car's value rather than a set figure

Some benefits also have sub-limits, such as a cap on weekly income replacement or on a particular kind of treatment. You'll find all of them on the declarations page or policy schedule.

Why limits shape injury settlements

In the US, many serious injury claims are really decided by the at-fault driver's limits rather than by the full value of the injuries. If your losses far exceed a low liability limit, the insurer may simply offer the limit. The question then becomes where the rest of the money can come from. In the UK, compulsory motor cover for injuries to others is unlimited, so this problem arises far less for road injuries, though limits can still matter for other types of claim, such as against some businesses. In Canada, provinces set minimum liability limits and many drivers carry well above them.

When losses exceed the limit

1. Look for other policies. Employer, vehicle owner, business, umbrella or homeowner policies may apply.
2. Check your own coverage. Underinsured motorist cover in the US, or optional excess coverage in Canada, may fill the gap.
3. Consider a formal limits demand. In many US states, if an insurer unreasonably refuses a clear chance to settle within its limits, it can end up liable for the excess.
4. Weigh a personal claim against the driver. This is often not worth pursuing unless they have significant assets.

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