What Are Split Limits in Insurance?
Understand how insurance payouts are structured with split limits. Learn what these numbers mean for your coverage and financial protection.
Insurance policies include specific limitations on the amount an insurer will disburse for covered incidents. These limits represent the highest sum an insurance company is obligated to pay out for a particular type of coverage. The policy limits are typically detailed on the declarations page of an insurance contract. This information is important for policyholders to assess their level of protection and manage potential financial risks effectively. If the costs associated with a claim exceed these set limits, the policyholder becomes responsible for the remaining expenses.
What are Split Limits?
Split limits represent a common way liability coverage is structured within an insurance policy, particularly in auto insurance. This type of limit is expressed as three distinct numbers, for instance, 25/50/25. These numbers indicate the maximum amounts the insurance company will pay for different categories of damages arising from a single incident or accident.
Unlike a single limit policy, which offers one lump sum for all damages incurred in an accident, split limits break down the coverage into separate components. This tripartite structure allows for specific maximum payouts for bodily injury per person, total bodily injury per accident, and property damage. For example, a 25/50/25 split limit policy signifies $25,000 for bodily injury to one person, $50,000 for total bodily injury to all persons in an accident, and $25,000 for property damage.
Understanding Each Component
The three numbers in a split limit policy each represent a distinct maximum payout for different categories of damages. The first number, $25,000, denotes the maximum amount the insurance company will pay for bodily injury sustained by any one person in an accident for which the policyholder is at fault. This limit applies individually to each injured party. If multiple people are injured, this per-person limit would apply to each of them separately.
The second number, $50,000, signifies the total maximum amount the insurer will pay for all bodily injuries combined in a single accident, regardless of how many people are injured. This overall accident limit comes into play if multiple individuals sustain injuries, ensuring that the total payout for bodily injury claims from that specific incident does not exceed this figure. For instance, if three people are injured, each claim is subject to the per-person limit, but the sum of all their claims cannot surpass the per-accident limit.
The third number, $25,000, represents the maximum amount the insurance company will pay for property damage resulting from an accident where the policyholder is at fault. This covers damage to another person’s vehicle, fences, buildings, or other property. It is important to recognize that these figures are maximums; any costs exceeding these specified limits become the direct financial responsibility of the policyholder.
How Split Limits Apply
Consider an auto insurance policy with 25/50/25 limits. In a scenario where the policyholder is at fault for an accident, and one person sustains $30,000 in bodily injuries, the policy would only cover up to the $25,000 per-person limit. The policyholder would then be personally responsible for the remaining $5,000.
In another instance, suppose the same accident results in two people being injured, with one incurring $20,000 in bodily injuries and the other $35,000. The per-person limit of $25,000 would apply to each individual. The first injured person’s $20,000 claim would be fully covered, but the second person’s $35,000 claim would only be covered up to $25,000, leaving a $10,000 gap for the policyholder.
Furthermore, the total payout for bodily injuries from this accident, combining the covered amounts ($20,000 + $25,000 = $45,000), would remain below the $50,000 per-accident limit. If, in addition to these injuries, there was $15,000 in property damage to another vehicle, the policy’s $25,000 property damage limit would cover the full $15,000. However, if the property damage amounted to $30,000, the policy would only pay $25,000, leaving the policyholder to cover the additional $5,000.
Choosing Your Split Limits
When deciding on appropriate split limits for an insurance policy, consider several personal financial factors. State laws mandate minimum liability coverage requirements, but these minimums are often quite low and may not provide adequate protection against significant financial loss in the event of a serious accident. Relying solely on state minimums can leave policyholders vulnerable to substantial out-of-pocket expenses if damages exceed these low limits.
A policyholder’s personal assets, such as savings, investments, and home equity, should influence the chosen coverage levels. If an accident claim exceeds the insurance limits, personal assets could be at risk to cover the difference. Consequently, selecting higher limits can provide a greater safeguard for these assets.
Driving habits and exposure to risk also play a role; individuals who drive frequently, in congested areas, or have a higher likelihood of being involved in an accident might benefit from increased coverage. While higher limits generally correlate with higher premiums, the added protection can outweigh the increased cost, especially given the potential for large financial liabilities from severe accidents.