A policy limit is the maximum amount of money that an insurance company will pay on behalf of a person for the damage they caused.
When an individual purchases liability insurance, it always comes with a policy limit.
Many people never expect to have to use their liability insurance, and because of this, they usually purchase minimal insurance in the hope of saving themselves money.
For this reason, it’s rare that compensation for an injury will go beyond the insurance policy limits.
How Insurance Policy Limits Work
Most auto insurance policies are comprised of two types of insurance:
- Bodily injury coverage and
- Property damage coverage
Bodily injury coverage has two limits: the first limit is how much the insurance company will pay for a single individual’s injuries.
The second limit is the maximum amount it will pay for all injuries sustained in the accident.
Sometimes, bodily injury coverage will be described as having “50/100” coverage. This means bodily injury compensation is limited to $50,000 per person and $100,000 per accident.
It gets a little more complicated when you consider property damage.
In auto insurance policies, there’s usually a separate limit for property damage. Usually, your claim can’t exceed the limits for either one, even if you stay within the total limit.
This is illustrated through the following example:
If you sustain $10,000 in bodily injury and $30,000 in damage to property, and the other driver has 50/100 bodily injury coverage and a $25,000 property damage limit, you would be paid the $10,000 in full as it is below the $50,000 bodily injury policy limit per person.
However, you would only receive $25,000 in property damage, as the additional $5,000 is above the policy limit, even though your total damages ($40,000) come to less than the total policy limit of $100,000.
Note that this is because the $100,000 is reserved for bodily injury coverage only, and so it doesn’t apply to your property damages.
What about additional damages?
When the damages incurred amount to more than the policy limits, your only option may be to sue the at-fault individual, as it’s rare for an auto accident settlement to exceed the policy limits.
So, how can you attempt to collect extra damages if your claim exceeds the policy limits?
This depends on whether the defendant has an umbrella policy on their insurance, which may allow you to collect extra compensation, as umbrella policies are used after the limits have been met on other policies.
It’s worth bearing in mind that individuals are less likely to have umbrella policies compared to corporate defendants, especially those with employees who spend a lot of time on the road - such as trucking companies.
Regardless, it’s important to investigate what kind of coverage the defendant has so you can maximize their policies to ensure you’re fully - and fairly - compensated.
If more than one defendant is liable for causing your injuries, this may allow you to recover compensation from multiple insurance policies.
This would be the case if you were hit by an employee of a delivery or trucking business, as both the driver and the company would be liable.
If both the individual and the company have a $50,000 bodily injury policy limit, you may be able to recover compensation up to $100,000 between the two insurance companies if your injuries were rendered severe enough.
It’s the defendant who is responsible for the injuries sustained, not the insurance company. The insurance company simply pays the damages up to the policy limits it’s contracted to pay on behalf of the defendant.
Therefore, if your damages exceed the policy limits, you may be entitled to a judgment for more than the maximum amount the insurance company can pay you. In this case, there may be an opportunity to attain the remaining judgment by garnishing the defendant’s wages or putting a lien on their property.
An insurance company may be accused of acting in “bad faith” if it denies a claim despite knowing that the claim should be approved.
By refusing to settle for a reasonable amount that is below the policy limits, a jury could award damages greater than the limits.
In this case, the insurance company may end up having to pay the whole judgment.
How much can you sue for a car accident?
Usually, an individual can sue up to the policy limits of the at-fault driver’s car insurance.
However, if the damages and injuries incurred exceed the policy limit, there may be an opportunity to collect compensation through umbrella policies (if the defendant has these), multiple defendants (if applicable), as well as personal judgments and bad faith claims.
Why is underinsured motorist coverage important?
However, in the event of severe accidents where catastrophic or life-changing injuries are acquired, medical bills can often exceed policy limits and an individual may still not get the compensation they deserve. This is why it’s also important that you carry underinsured motorist coverage.
This adds an extra layer of protection if you find yourself in a situation where your damages amount to more than the policy limit of the at-fault driver’s insurance.
Underinsured motorist coverage allows you to make a claim that can help supplement the compensation you receive and cover any expensive medical bills and long-term treatment or medication required.
So as we said, it’s pretty rare for auto accident settlements to exceed the policy limits. Sometimes, an accident can have life-changing impacts on a victim and the expense of medical bills will far exceed this amount. On top of this, there’s also the issue that catastrophic injuries can never fully be compensated because that person’s life is changed forever.
However, in the case that damages and injuries sustained exceed the policy limits of insurance coverage, there are a few other ways in which the victim can attempt to get the amount of compensation they deserve.
The key thing is to have a highly skilled attorney on your side who can help you assess your options and help you win the highest amount possible.