Anyone who is driving needs to understand what happens when auto insurance liability limits are exceeded. The financial consequences of not having enough coverage in place to pay for damages caused in an at-fault accident can be significant and long-lasting.
When an accident occurs, an investigation is conducted to determine which driver was at fault. That person, through his or her insurance company, is responsible for paying for the damages caused. The occupants of the other vehicle can make a claim for medical bills, rehabilitation expenses and lost wages. Claims for pain and suffering may also be made under the bodily injury liability portion of the policy.
The at-fault driver is also responsible for paying for property damage claims arising from the accident, including repairs to the other driver’s vehicle. The cost to repair or replace public property damaged in the accident, such as mail boxes, sign posts, fences and guard rails, is also covered by the at-fault driver’s auto insurance company.
Auto Insurance Minimum Coverage Requirements
Most states have passed laws requiring drivers to buy at least a minimum level of liability protection. Insurance policy limits have a specific number for bodily injury claims made by one person and another one for all occupants of the other vehicle injured in the same accident. A separate policy limit for property damage claims also exists.
For example, if a driver has a policy with 25/50/25 coverage, the separate components can be broken down as follows:
- $25,000 to pay for bodily injury claims made by one person
- $50,000 to pay for all bodily injury claims stemming from the same accident
- $25,000 for property damage claims
Accident Claims Which Exceed Policy Limits
An auto insurance company will only pay out for personal injury and property damage claims up to the limit the policyholder has decided to put in place. In most states, the minimum level of liability coverage required by law is relatively low. If a serious accident occurred, the coverage would not be high enough to fully pay for the damages caused.
In that instance, the insurance company would pay out up to the policy limit in any damages owing above this amount must be paid by the policyholder personally. No one on the road wants to receive a notification that their auto insurance lighting liability limits are exceeded following an active fault accident.
The at fault driver would need to either sell off his or her assets or make an arrangement to pay the balance owing. Rather than having to face either of these less than desirable consequences, a much better option is to buy a policy offering a higher level of protection.
The amount of coverage that a particular driver will need to have in place will depend on the value of the assets that he or she owns. It’s a good idea to add on several years worth of earnings to the policy limit to lower the risk of having to pay for damages following an accident personally.