Part 1: Liability Coverage
Liability coverage pays for losses related to bodily injury, property damage, lawsuits, and defense costs. Bodily injury coverage protects against expenses related to deaths or injuries resulting from an accident. Property damage coverage protects against costs for damage to the car or cars involved in an accident, as well as damages to other property (such as fences or fire hydrants). Lawsuit coverage covers losses related to any lawsuit resulting from an accident.
Combined-Limit Coverage
Liability coverage may be listed on your policy as a combined-limit or as a split-limit, depending on the type of insurance you have. Combined-limit insurance lists one maximum amount that the insurance company will pay to cover all types of liabilities in an accident. For example, 300/50. This means the insurance policy will cover up to $300,000 worth of injuries in an accident with no limitations on a per individual basis (see below). However, most policies are written as split-limit policies.
Split-Limit Coverage
Split-limit insurance lists the maximum amount that the insurance company will pay for each of the specific types of liability. If you have a 100/300/50 split-limit insurance policy, it means your limits are $100,000 per person for bodily injury liability coverage, $300,000 per accident for bodily injury liability coverage, and $50,000 per accident for property damage coverage. These dollar amounts are the maximum amounts your insurance company will pay per person or per accident. Should the costs of the accident exceed these limits, you will be responsible for paying the difference.
Example:
If you were to get into an accident the most your insurance policy would cover for the entire accident would be $300,000. However, the max they will pay per person is only $100,000. If the accident involved eight people and all eight people each had $50,000 worth of injuries the insurance policy would only cover the first six people. You would be personally liable for the remaining two. If the accident only involved two people but one of the persons injuries resulted in $150,000 of injuries the insurance policy would only cover the first $100,000 and you would personally liable for the remaining $50,000. In either case the most the insurance policy would pay for property damage is $50,000 total (including all parties involved).
The recommended split-limit minimum liability coverage limits are 100,000 per person and 300,000 per accident with 50,000 for property damage. The combined-limit recommend liability coverage limits are 300,000 per accident with 50,000 property damage.
Automobile Insurance Explained
Part 1: Liability coverage (see above)
Part 2: Medical payment
Part 3: Uninsured/underinsured motorist coverage
Part 4: Comprehensive physical damage coverage
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