Policy limits

In plain English: a policy limit is the most an insurer will pay under a particular coverage for a single accident or claim. Once it's used up, the insurer pays nothing more under that coverage.

Reading the numbers

In the US, car liability limits are often written as three figures, such as 25/50/25 (in thousands). The first is the most paid for one person's injuries, the second is the most for all injuries in one accident, and the third is property damage. A combined single limit is one figure that covers everything in the accident. Your declarations page shows which you have.

In the UK, compulsory motor cover for injury to other people is unlimited, so policy limits rarely cap car injury claims, though they matter for property and some other liability policies. In Canada, provinces set a minimum third-party liability amount and many drivers carry more.

When your claim is worth more than the limit

This is common in the US when someone is badly hurt and the at-fault driver carries only the state minimum. Options usually include:

• Your underinsured motorist cover, which can pay above the other driver's limit up to your own UIM limit.
• Other liable parties, such as an employer if the driver was working, a vehicle owner, or a business whose negligence contributed.
• Umbrella policies held by the at-fault driver, which sit on top of their car policy.
• The driver personally, though most people don't have assets that make this realistic.

Policy limits demands

When damages clearly exceed the cover, lawyers often send a time-limited demand offering to settle for the full limit. In many US states, an insurer that unreasonably refuses a reasonable offer within limits can end up responsible for the full verdict above them. That's a strong incentive to pay, and it's why these demands need to be precise about the deadline, the release and the documents provided. Rules on these demands vary by state, and some states have statutes setting out what they must contain.

Finding out the limits

Insurers don't always disclose limits voluntarily. Many US states allow or require disclosure on request, sometimes with a sworn statement. In a lawsuit, the policy is normally disclosed. A lawyer will usually ask early, because it shapes the whole strategy.

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