What is Policy Limits?
The maximum amount an insurance company will pay for a covered claim under an insurance policy.
Understanding Policy Limits
Policy limits are set when the policy is purchased and vary by coverage type. In auto accidents, the at-fault driver's liability limits cap what their insurer will pay. If damages exceed policy limits, victims may need to pursue the individual directly or use their own underinsured motorist coverage.
Examples
- 1$100,000 bodily injury liability limit per person
- 2$300,000 limit per accident for all injuries
- 3Stacking multiple policies to increase available coverage
Related Terms
Underinsured Motorist Coverage
Insurance coverage that protects you when the at-fault driver's liability insurance is insufficient to cover the full extent of your damages.
Uninsured Motorist Coverage
Insurance coverage that protects you if you're injured by a driver who has no liability insurance or insufficient coverage to pay for your damages.
No-Fault Insurance
An auto insurance system where each driver's own insurance pays for their medical expenses and lost wages regardless of who caused the accident.
Total Loss
When a vehicle is damaged to the extent that the cost of repairs exceeds the vehicle's actual cash value, or when the vehicle cannot be safely repaired.
Bad Faith Insurance
When an insurance company unreasonably denies, delays, or underpays a valid claim, or fails to properly investigate or defend its insured.
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