Auto Insurance Coverage Limits Explained
Coverage limits are the maximum amount that an insurance provider will payout following an accident. It is important to understand what the coverage limits to your policy are before an accident occurs. The coverage amount has a direct impact on the price of your auto insurance policy and as a general rule the higher the coverage limit the more expensive the policy becomes. While it may be tempting to lower your coverage limits to save money, you could be left responsible for out-of-pocket expenses if you fail to purchase enough insurance and are found at fault for an accident.
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State Mimimum Requirements
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Most states have established a minimum insurance coverage amount that must be met before a person may legally drive on the state's roads. Failure to maintain the minimum coverage amounts can result in fines, loss of license and financial responsibility of any injuries or damages that result from an accident. Edmunds provides a complete list of state-by-state minimum legal coverage requirements (see resources).
Bodily Injury
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Bodily injury is a type of liability insurance that covers expenses incurred by other people involved in an accident for which you are at fault. The other party's medical bills, rehabilitation, funeral costs and legal expenses are covered by this type of insurance. Your insurance policy will have a maximum coverage limit per person and per accident. In the event that the costs exceed the amount covered by your policy, you can be liable for additional costs and lawsuit settlements out of your own pocket.
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Personal Injury Protection
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Personal injury protection, or PIP, covers medical expenses, lost wages, funeral expenses, rehabilitation and child care expenses for you and any passengers in your vehicle regardless of who is found to be at fault for the accident. When determining how much PIP coverage to purchase, be certain your living expenses would be covered for a reasonable amount of time with the coverage limit you select.
Property Damage
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Property damage coverage limits determine how much your insurance provider will pay out to cover the costs of repairs or replacement of another person's property after an accident you cause. This coverage generally includes legal costs, repairs or replacements of vehicles damaged, and property damage if your vehicle strikes a non-moving object.
Comprehensive and Collision
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Comprehensive insurance covers damages or loss resulting from theft and vandalism. Collision insurance covers the costs of repairing or replacing your vehicle after an accident you caused. The coverage limit is based on the current value of your vehicle. As vehicles depreciate quickly, you should reevaluate the cost versus benefit of comprehensive and collision insurance each time you renew your policy. While the cost of the coverage will likely stay the same year after year, the coverage limit will drop as your vehicle ages.
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References
Resources
- Photo Credit Jeep and car after the road accident. image by Dragan Trifunovic from Fotolia.com
