Special thanks to Matt Shao for contributing to our blog!
I’d like to ask you a question; pose a hypothetical situation, if you will. Imagine that you just got off work late one Friday afternoon, and you’re rushing home to get ready for the evening’s activities. All of a sudden your phone falls onto the floorboard, and you reach down to get it. As you’re wrangling the seat belt trying to lean down and grab it, a car comes from nowhere and you collide into it – and its indisputably your fault (worry not, this is hypothetical!).
Here’s my question:
Do you know, for sure, how much money your insurance will pay the other person?
Can you say with confidence that if you injured someone (or someones), your insurance will pay the bill. Before your wallet’s the one the accident attorney is digging into? In insurance jargon, your “limits of liability” are the point in question here.
If you’re one of the few who answered yes, good job! You’re a member of a very small group of people. If you answered no, don’t feel bad. I bet about 80% of people I speak to have absolutely no clue what their limits are. Further still, they have no idea what the numbers mean when they see them: for example, 50/100/50.
But worry not! This article will assure you’re prepared if the unfortunate were to happen.
First, it’s important to understand that there are two different types of damages for which you can be held liable:
The first is bodily injury. This is when passengers in the car you hit incur any expenses that are caused from the accident. This is not excluded to just hospital/medical costs. This can include pain & suffering, loss of income due to missed work, etc. As I’m sure you’re well aware, these expenses can rack up fast.
The second is property damage. This coverage applies to any property, personal or otherwise, that you damage. Examples include the other person’s vehicle, personal belongings inside their car, a city-owned telephone pole, and so on. Again, these costs can be extremely high, particularly in cases like multi-car incidents.
So now that you understand the two types of coverages that you have, let’s review how they are expressed on your policy.
Auto liability limits are written in one of two ways:
The first is a single limit.
This is the simpler, yet more uncommon type of policy. As the name implies, there is one amount that defines the most your policy will cover for any and all damages (both bodily injury and property). This limit is per occurrence, meaning it applies to each individual incident. i.e. you could have 3 wrecks during your policy period, and each would cover you for the same amount. It is not aggregated.
The second (which is almost always how liability is written) is a split limit.
This is expressed by three different numbers, with each having their own specific meaning. Let’s use 100K/300K/100K as an example.
The first number, 100, is your single person bodily injury limit. This is the most the policy will pay for damages incurred by and one individual.
The second number, 300, is your per accident bodily injury limit. This is the absolute maximum that your policy will pay for all bodily injury damages for any one occurrence.
The third number, 100, is your property damage limit. This is the most your insurer will pay for any damage you caused to property.
Again, the vast majority of policies are written with split limits. In TN, the state minimum that is legally required to drive is 25/50/15 (the single limit minimum is 65K). I’m sure I don’t need to emphasize that this is extremely low, and even the smallest accident can exceed these limits in a hurry.
Speaking of which, let’s return to our hypothetical scenario above.
Let’s say you tap the rear fender of a ’99 Civic at a red light, which in turn taps the fender of a ’17 Lexus. The driver of the Lexus is fine, but needs the entire fender replaced. The Civic, having damage on both ends, is totaled since there was some frame bending. The driver and his passenger both claim to have a neck injury. Worse, the small child in the back seat suffers from whiplash.
In our example, you carry the state minimum liability limits of 25/50/25.
The total of the property damages to replace both vehicles’ damage ends up totaling $18,000. However, after all is said and done, the attorney representing the Civic holds you accountable for $30,000 in bodily injury expenses to the driver. The first passenger magically happens to have the same amount of damage; another 30K. The child’s expenses, after initial visits and rehab, are 20K.
Sounds pretty bad, huh? So what does all this mean for you?
Well, the property damage is pretty cut and dry. You’re covered for 15K, so that’s 3K coming out of your bank account (or most likely, future wages).
As far as the Civic passengers, your policy covers the first two for your full per person limit (25K), maxing out your per accident policy limit of 50K. Since both had 30K of damage, the remaining 5K for each is on you. The worst part, as if this weren’t enough, is that the child’s 20K isn’t covered at all, since you’re maxed out.
Let’s add that up. 3K + 5K + 5K +20K = 33K. So you now have to find a way to come up with $33,000. I know I couldn’t do that. And if you can’t either, then expect a portion of every paycheck you receive for the foreseeable future to be garnished until the debt is paid. A pretty terrible thought, if you ask me.
This is why it is extremely important to know what you have, and what it means to you. I strongly recommend that you take a look over your coverages after reading this and truly ask yourself if it’s adequate. After all, the last thing anyone wants is someone reaching into their pockets.
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