Understanding Auto Liability Insurance: What Those Numbers on Your Policy Really Mean

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Auto insurance is something many drivers purchase because it is required, but few take the time to understand what their coverage actually provides. Knowing the meaning of your liability limits can help you make better decisions and avoid a serious financial problem after an accident.

Why Your Liability Limits Matter (1:45)

Most people pay close attention to their insurance premium, but they may not pay the same attention to their coverage limits. That can become a major issue when an accident causes injuries or expensive property damage.

Liability coverage helps pay for bodily injury or property damage that you become legally responsible for causing to someone else. Once your policy limits have been exhausted, you may be personally responsible for the remaining amount.

This is why choosing auto insurance based only on the lowest available price can leave you exposed.

Understanding Split Liability Limits (2:45)

Auto liability limits are often displayed as three numbers separated by slashes, such as:

100/300/100

Each number represents a different part of your liability coverage:

$100,000 for bodily injury per person
$300,000 for bodily injury per accident
$100,000 for property damage per accident

Although the numbers may initially look confusing, understanding them is important because each limit applies differently.

Bodily Injury Coverage Per Person (3:41)

The first number represents the most the policy will pay for bodily injury to any one person injured in an accident you caused.

With limits of 100/300/100, the policy would pay up to $100,000 for one injured person. Bodily injury expenses may include emergency transportation, hospital bills, rehabilitation, ongoing treatment and other damages for which you are legally responsible.

For example, if one person suffers $500,000 in covered damages but your per-person bodily injury limit is $100,000, your policy may only pay up to that $100,000 limit. You could be personally responsible for the remaining $400,000.

Bodily Injury Coverage Per Accident (4:05)

The second number is the total amount available for bodily injuries to everyone involved in a single accident.

Using 100/300/100 limits, the policy would provide no more than $300,000 in total bodily injury coverage for that accident. However, the $100,000 per-person limit would still apply.

This becomes especially important in accidents involving several passengers or multiple vehicles. Even if several people are injured, the policy will not pay more than the total per-accident limit.

What Happens When Your Limits Are Too Low? (5:15)

When an accident costs more than your insurance limits, the injured party may pursue you personally for the remaining amount.

Depending on the circumstances and applicable law, a judgment could affect your wages, savings or property. Drivers sometimes assume they have nothing that another party can pursue, but future income and property ownership may also be at risk.

Carrying higher liability limits does not cause someone to have a larger claim. The seriousness of the accident, injuries and damages determines the potential claim. Your insurance limits simply determine how much financial protection your policy may provide.

How a Personal Umbrella Can Add Protection (8:15)

A personal umbrella policy provides additional liability coverage above the limits of certain underlying policies, such as auto or homeowners insurance.

For example, when a covered auto liability claim exceeds the limits of your auto policy, an umbrella policy may provide another layer of protection, subject to its terms, exclusions and coverage requirements.

Insurance companies generally require policyholders to maintain certain minimum underlying liability limits before an umbrella policy can be issued. This means drivers carrying low auto liability limits may need to increase them before qualifying for umbrella coverage.

Understanding Property Damage Liability (14:40)

The third number represents property damage liability.

With 100/300/100 limits, the policy may pay up to $100,000 for damage to someone else’s property in a covered accident. This could include:

Another vehicle
Several vehicles
A fence
A building
Equipment or other property

Vehicle prices have increased significantly, and many trucks, luxury vehicles and commercial vehicles can be extremely expensive. A multi-vehicle accident can exhaust a property damage limit more quickly than many drivers expect.

The Financial Risk of a Multi-Vehicle Accident (17:25)

Consider an accident involving several newer vehicles. If a driver causes damage to a luxury SUV, a pickup truck and another high-value vehicle, the total cost could easily exceed a lower property damage limit.

Once the available property damage coverage has been used, the at-fault driver may be responsible for the difference.

Bodily injury claims can be even harder to predict. A serious injury may involve an air ambulance, surgery, extended hospitalization, rehabilitation, lost income or permanent disability. Because it is impossible to know how severe a future accident might be, drivers should carefully consider whether their current limits provide enough protection.

Review Your Auto Insurance Before an Accident Happens (19:45)

Your vehicle is one of the largest sources of liability you may face in everyday life. Even a brief mistake behind the wheel can cause injuries and damages that reach far beyond the minimum insurance required by the state.

Take a moment to review the liability limits listed on your current policy. Consider the value of the vehicles around you, the rising cost of medical care and the assets or income you need to protect.

A licensed independent insurance agent can explain your current limits, discuss higher-limit options and help you determine whether a personal umbrella policy may be appropriate for your situation.

Coverage varies by company, policy and state. Always review the terms, conditions, exclusions and limits of the policy issued and speak with a licensed insurance professional about your individual needs.