Insurance Policy Limits Explained

When you have an insurance policy, you pay a premium to keep the policy, and a deductible, or what you pay out of pocket before receiving coverage or financial assistance. But what many policyholders are less familiar with is the policy limit. It refers to the maximum amount an insurer will pay for a given type of coverage.

Once you reach the policy limit, you must pay for any expenses that are left after your insurer covers expenses. A limit of liability, or cap, is set depending on how much insurance you purchase.

How Insurance Policy Limits Work

You can often choose a limit on your policy when you apply for insurance. Or, you may need to meet minimum requirements set by an insurer or the government to obtain a certain limit. In most states, for example, the minimum amount of auto insurance coverage is set. The coverage you have must meet or exceed that, which is typically a dollar amount for no-fault, liability insurance, and uninsured motorist coverage.

To find your insurance policy limit, check your policy’s declarations page. You’ll usually find a different limit for each type of coverage, but multiple coverage types can have a single limit as well. There are different types of limits too, including:

  • Per-Occurrence Limits: The maximum coverage provided for a single claim or event.
  • Per-Person Limits: How much the insurer is willing to pay for claims involving one person.
  • Aggregate Limits: The total amount the company can pay for all claims in a year or over a specified period.
  • Combined Limits: A single limit that the insurance company can apply to multiple types of coverage.
  • Split Limits: A combination of limits, mainly per-occurrence, per-person, and aggregate limits.
  • Special Limits: A maximum payout on specific items, such as valuable artwork covered on a homeowners insurance policy.

Limits vs. Type of Insurance Policy

Setting insurance policy limits can be tricky. With auto insurance, consider the costs if you cause an accident; you may be responsible for paying medical and vehicle repair bills. Research the typical cost of vehicles and repairs in your area to determine a suitable property damage liability limit. For bodily damage liability/medical payments coverage, the recommended amount is usually $100,000/$300,000.

For homeowner’s insurance, lenders typically require minimum amounts of coverage to have a mortgage. But that doesn’t cover additional needs, such as rebuilding your home, covering temporary living expenses, or replacing valuables. Minimum coverage also won’t pay for damages/injuries to others on your property. Therefore, you should consider purchasing additional insurance.

Tips on Setting Insurance Policy Limits

Try talking to a family member, friend, neighbor, or colleague. You never know who may be able and willing to assist you financially. However, there’s always a chance they may not offer help, whether due to their own financial obligations or your questionable loan history with them. In such instances, use a pending settlement or proof your case is going to court in convincing them you’ll pay them back.

FCA Legal Funding Can Help with Policy Research

In addition to our settlement funding programs, we can provide information on policy limits for the at-fault party. Knowing these can help maximize settlements. We can help uncover limits for personal auto, personal umbrella, homeowner’s, commercial, and other policies within two business days or 12 business hours. Additional fees may apply. To begin liability research, submit your request online, or call 855-870-2274 to speak with us directly.