Liability limits
A liability insurance policy pays claims against the insured up to stated limits. Auto policies often express these as a split, such as a per-person limit for bodily injury, a per-accident limit for all bodily injury claims, and a separate property damage limit. A business’s general liability policy covering a premises injury will have its own limits and terms.
Every state that requires auto liability insurance sets its own minimum limits, and many drivers carry only the minimum. Minimum requirements change from time to time, so check your state insurance department or motor vehicle agency for the current figures rather than relying on a number repeated online.
Why limits act as a practical ceiling
Damages are not legally capped at the policy limit — a court judgment can exceed it. But collecting more than the insurance usually requires the at-fault person to have collectible assets or other coverage, which many individuals do not. As a result, when damages exceed the limits, settlements often occur at or near the available coverage. Liability insurers can also face legal consequences in some states if they unreasonably refuse to settle within limits, which is one reason demands sometimes request the policy limit.
Uninsured and underinsured motorist coverage
Uninsured motorist (UM) coverage is part of your own auto policy and may pay for your injuries when the at-fault driver has no insurance or, under many policies, in hit-and-run cases. Underinsured motorist (UIM) coverage may pay when the at-fault driver’s liability limits are too low to cover your damages. Whether these coverages are required or optional, how they are calculated, and whether the at-fault driver’s payment is subtracted from your UIM limit (an “offset”) or your coverage is added on top depends on your state and your policy wording.
A UM/UIM claim is a claim against your own insurer, but that insurer is effectively standing in the shoes of the at-fault driver and may dispute liability or damages. Policies usually contain notice and consent requirements — for example, requiring you to notify your insurer before accepting a settlement from the at-fault driver’s insurer. Missing these steps can jeopardize UIM coverage, so read the policy and seek advice before signing a release.
A driver with a $25,000 per-person bodily injury limit causes a crash. The injured person’s documented losses alone are $38,000. The liability insurer offers its $25,000 limit. The injured person has $100,000 in UIM coverage. Depending on the state and the policy, the UIM coverage might be available for damages above $25,000 (or above a different figure if an offset applies), but the injured person’s insurer would evaluate the damages itself, and policy conditions such as consent to settle would need to be satisfied first.
Other coverage that may be relevant
- Medical payments (MedPay) coverage on an auto policy pays medical bills regardless of fault, up to a limit.
- Personal injury protection (PIP) is required in some no-fault states and covers certain medical and wage losses regardless of fault; it may also restrict when you can sue for non-economic damages.
- Umbrella policies held by the at-fault party may provide coverage above their auto or homeowner limits.
- Multiple liable parties — for example a driver and their employer — may each have coverage.
Questions to ask about coverage
- What are the at-fault party’s liability limits, and is there any umbrella or excess coverage?
- Do I have UM/UIM, MedPay or PIP coverage, and what are my limits? (Your policy declarations page lists them.)
- Does my policy require notice or consent before I accept a settlement from the other insurer?
- How does my state treat UIM offsets?
The Settlement Estimator lets you enter a known policy limit; it will flag when your figures exceed it but does not reduce the estimate automatically, because other coverage may exist.
Sources and references
- Maryland Insurance Administration: Consumer Advisory on Uninsured Motorist Coverage (opens in a new tab) — an example of a state insurance regulator’s explanation of uninsured/underinsured motorist coverage (Maryland-specific)