How do insurance coverage limits work?

How do insurance coverage limits work?

When you get a quote for a new insurance policy, the agent or insurer may pre-select the coverage limits or present you with a few options. Insurance limits on your policy determine the maximum amount your insurer may pay out for claims in each coverage category. Generally, a higher coverage limit means a more expensive insurance premium, and vice versa.

When selecting auto insurance limits, consider your specific situation in terms of risk and budget. If you have a family member prone to fender benders, for example, you might consider a higher liability coverage limit on your auto policy.

Your insurance company may pay out for covered losses up to your coverage limit, minus your deductible. Any costs that exceed your policy's insurance limits may be your responsibility.

Car insurance limits explained

In the U.S., most states require a minimum limit for liability coverage on an auto insurance policy. Liability coverage limits on car insurance are typically shown as three separate numbers. If you carry auto insurance with liability coverage limits of $50,000/$100,000/$30,000, those numbers are broken down as follows:

• $50,000: The maximum coverage limit your insurer will pay for bodily injuries per person
• $100,000: The limit your insurer will pay for bodily injuries per accident
• $30,000: The limit your insurer will pay for property damages per accident to another party's vehicle or property

For other types of auto insurance coverages, such as comprehensive car insurance coverage and collision car insurance coverage, your insurance limit is often the cash value of your car, which usually takes into account the vehicle's depreciation. Although non-liability coverages aren't typically mandated by states, collision and comprehensive coverage may be required by the lender if you're leasing or financing your vehicle.

Learn more about how much car insurance you need.

Home insurance limits explained

Dwelling limits

On your home insurance policy, some lending institutions like mortgage and finance companies require you to have enough dwelling coverage to cover your loan amount. Some insurers will set dwelling coverage limits based on the replacement cost of your home, which is determined by its age, size, and other features. For these reasons, you may not be able to choose your dwelling coverage limits. If you do have a choice on your dwelling limit, research how much it might cost to rebuild your home and aim for that amount of coverage. Your other structures coverage limit is generally a percentage of your dwelling coverage.

Personal property limits

Your personal property coverage limit is typically 50% of your dwelling limit, though this may sometimes be increased or decreased. Homeowners policies may also have additional coverage limits called sub-limits for specific items like jewelry and firearms. If you want specific items to be covered up to their full replacement cost, consider "scheduling" them with a rider, also known as an endorsement.

Loss of use limits

Insurers vary in how they set coverage limits for loss of use (living expenses above and beyond your normal costs incurred while your home is being repaired or rebuilt due to a covered loss). Some policies offer coverage for hotels and meals for a set amount of time, while others set the coverage limit at a specific dollar amount or percentage of your dwelling coverage limit.

Personal liability limits

For homeowners, personal liability coverage may provide protection if you or a resident relative is found at fault for bodily injury or damage to another person's property. You may be able to choose your personal liability coverage limit; often the three choices are $100,000, $300,000, or $500,000. Your limit typically applies to covered damages that an insured is legally liable for.

Learn more about how much homeowners insurance you need.

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