Car insurance is designed to protect you financially in the unfortunate event of an accident. But what happens when a car accident claim exceeds an insurance limit? Here’s what you need to know about coverage limits and how to protect yourself and your family.
What is a car insurance limit?
A car insurance limit refers to the amount your insurance company will pay up to in the event of a claim. You choose your coverage limits when you buy your car insurance policy.
A limit doesn’t mean that your insurance company will pay this amount for every claim. For example, if the necessary expenses from a claim are lower than the limit, your insurance company will cover the costs. Likewise, if the costs relating to a claim exceed the limit, the insurance company will pay up to the limit and no more.
In most states, there are minimum car insurance coverages and minimum limits you must satisfy. However, these limits are typically low and may not be enough to cover your expenses or liability in the event of a claim. It’s never a good idea to carry just the minimum coverage, as you can exhaust your limits quickly if you get into a car accident.
The higher the limit, the more the insurer will pay in the event of an accident. Carrying lower limits can reduce your premium payments, but it comes with some risk. With lower limits, you’ll be responsible for higher out-of-pocket costs in the event of an accident.
Coverage for you and your vehicle
What happens when a claim exceeds your limits depends on the coverage. Here are some scenarios for common car insurance coverages:
Personal Injury Protection and Medical Payments coverage
No-fault insurance states will require one of either Personal Injury Protection (PIP) or Medical Payments coverage (MedPay). These are coverages that pay for medical and other expenses regardless of fault for all occupants of your vehicle after a car accident.
With PIP or MedPay, you can go through your own insurance for medical expenses first. This is the case even when you’re not at fault for the accident. If your medical bills exceed your coverage limit, you may be able to sue the other driver.
If it’s determined you were at fault for the accident, you would be responsible for any of your medical expenses beyond what your own PIP or MedPay will cover.
Collision and Comprehensive coverage
Collision and Comprehensive coverages help pay for repairs to your car. Your collision coverage applies if a collision with another vehicle or stationary object damages your car. Comprehensive applies when your car is damaged by anything else, including weather, vandalism, theft and more.
| Collision coverage may cover: | Comprehensive coverage may cover: |
| Hitting another vehicle | Natural disasters and storms |
| Damage caused by another vehicle | Vandalism |
| Hitting a stationary object | Damage caused by animals |
Rather than a limit, Collision coverage and Comprehensive coverage have a deductible. A deductible is your share of the cost in the event of a claim. It’s what you pay “out-of-pocket” before your insurance starts paying.
While you do not choose a limit for Collision or Comprehensive coverage, insurance companies will not pay for repairs that exceed the fair market value of your car. If it costs more to fix the car than what the car is worth, or if the car was stolen and not recovered, insurance companies will declare the car a “total loss”. The insurance company handling the claim will offer you a settlement check for the value of your car at the time of the loss. You may have to pay your deductible in this case.
If you choose to accept the settlement check, you must sign over the title of the vehicle. The insurance company will then take ownership of it.
An insurance company will pay no more than what the car is worth at the time of the total loss. If you owe money on the car, you will still have to make payments on it. A totaled car doesn’t get you out of a loan or lease contract. This could be financially significant if your car is totaled soon after purchase.
That’s where Gap coverage or New Car Replacement coverage from Plymouth Rock can help. Loan/Lease Gap coverage protects you from having to make payments on a totaled car. It covers the “gap” between what you paid for the car and what it was worth.
If you have New Car Replacement, we will pay the cost of replacement for the same make, model and year of your car, if available, if you experience a total loss and your car was two model years old or less at the time of the accident.
Please note you can’t combine Loan/Lease Gap coverage with New Car Replacement coverage.
Liability coverage
Bodily Injury Liability coverage helps pay in the event you are liable for the accidental injury or death of others caused by the operation of your car. Simply put, if you’re liable for injuring someone in an accident, your Bodily Injury Liability coverage helps pay for their medical expenses.
Likewise, Property Damage Liability coverage helps pay for damage to someone’s property you are liable for.
If the injuries or damage you’re liable for exceeds your liability coverage limits, you are legally responsible for the excess.
Uninsured and Underinsured Motorist coverage
Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage can pay for your medical expenses and car repairs if you’re struck by a motorist without insurance coverage, or by a motorist with limits that do not cover the injuries or damage they cause. Hit-and-run drivers are typically considered to be uninsured motorists.
In the case of an underinsured driver, your Underinsured Motorist coverage will start paying for expenses after the at-fault driver exhausts their liability coverage.
Unfortunately, many people who drive uninsured or with the minimum limits do so because they can’t afford more coverage. It is unlikely you would be able to recover expenses from them if they cause a crash, especially if it’s a hit-and-run situation. In this case, the only practical solution would be for you to have carried higher limits on UM, UIM and PIP/MedPay coverage as a precaution.
Conclusion: How to protect yourself
One of the best ways to protect yourself when you’re out on the road is to carry more coverage. While each state has a minimum coverage limit, these minimum limits mean just that: minimum coverage. The minimum coverage may not cover your own bills, or be enough to cover your liability if you cause an accident.
That’s why it’s so important to carry more than just the required coverage types at the minimum limits. With your own coverage, you don’t need to worry if the other driver has coverage. While no one can predict the exact outcome of an accident, you can be better prepared when you know you’re covered.
