Understanding Policy Limits in Car Accident Cases

After a car accident, most people look to the at-fault driver’s insurance policy to cover their damages. But what many don’t realize is that insurance coverage has limits, and those limits can significantly affect how much compensation you receive. If your losses exceed the other driver’s policy limits, you may have to explore other options to recover the full amount you’re owed.

In this guide, PKSD explains what policy limits are, how they work, and why they matter so much in car accident cases.

What Are Policy Limits?

A policy limit is the maximum amount an insurance company will pay for a covered loss under a specific policy. In car accident cases, the policy limit determines how much the insurer will pay for bodily injury, property damage, or both.

Policy limits are set when the policy is purchased. Drivers often choose the minimum coverage required by state law to keep premiums low, but that minimum amount may not be enough to cover all damages in a serious accident.

Common Types of Auto Insurance Policy Limits

Car insurance policies typically include different limits for different types of coverage:

Bodily Injury Liability per Person
The maximum amount the insurer will pay for injuries to a single person in an accident.
Bodily Injury Liability per Accident
The maximum amount the insurer will pay for all injuries in a single accident, regardless of how many people are hurt.
Property Damage Liability
The maximum amount the insurer will pay for damage to vehicles or other property.

Example:
A policy might have limits of $50,000 / $100,000 / $25,000:

$50,000 for injuries to one person
$100,000 total for all injuries per accident
$25,000 for property damage

If your damages exceed any of these amounts, the insurer is not obligated to pay more.

Why Policy Limits Matter in Car Accident Claims

When you’re injured in an accident caused by another driver, you may assume the at-fault driver’s insurance will cover all your costs. Unfortunately, that’s not always the case.

If your medical bills, lost wages, and other damages are greater than the at-fault driver’s policy limits, the insurance company will only pay up to those limits. You’ll need to find alternative ways to recover the remaining amount.

How Policy Limits Affect Your Compensation

Let’s say you are injured in a crash, and your total damages are $150,000. The at-fault driver’s policy has a bodily injury limit of $50,000 per person. The insurance company will pay $50,000, leaving you $100,000 short.

This gap can be devastating, especially if you have significant medical needs or are unable to work for an extended period.

Options When Damages Exceed Policy Limits

If your damages are greater than the other driver’s coverage, you still have a few options:

1. File a Claim with Your Own Insurance

If you have uninsured/underinsured motorist coverage (UM/UIM), your own insurance company may cover the remaining damages up to your policy limits. This is why carrying UM/UIM coverage is so important. It protects you when the at-fault driver’s insurance isn’t enough.

2. Pursue the At-Fault Driver Personally

You can sue the at-fault driver to recover damages beyond their insurance limits. However, this is only practical if the driver has assets that can be used to pay a judgment. Many individuals with low insurance limits may not have the means to pay large awards.

3. Seek Compensation from Other Liable Parties

Sometimes, other parties may share responsibility for the accident. For example:

An employer, if the at-fault driver was on the job
A vehicle manufacturer, if a defect contributed to the crash
A government agency, if poor road maintenance played a role
Identifying additional liable parties can open up more sources of compensation.

How Insurance Companies Handle Policy Limit Cases

When a claim clearly exceeds policy limits, insurance companies have a duty to act in good faith to protect their insured from excess liability. This means they may:

Offer to settle for the full policy limit early in the process
Attempt to negotiate to avoid a lawsuit

If the insurer refuses to settle for the policy limits and you win a verdict higher than those limits, the at-fault driver may have a claim against their own insurance company for acting in bad faith.

Tips for Protecting Yourself Against Policy Limit Issues

While you can’t control the other driver’s coverage, you can take steps to protect yourself:

Purchase Adequate UM/UIM Coverage
This is one of the most important protections you can have. Choose limits that reflect your potential financial needs after a serious accident.
Consider Medical Payments (MedPay) Coverage
MedPay can help cover immediate medical expenses, regardless of fault.
Understand Your Own Policy
Know your limits and coverage types so you can make informed decisions.
Document All Damages
The more proof you have of your losses, the stronger your claim will be, whether you’re negotiating with the at-fault driver’s insurer or your own.

Working with an Attorney on Policy Limit Cases

Car accident cases involving policy limits can be complex, especially when damages exceed available coverage. An experienced personal injury attorney can:

Investigate all possible sources of compensation
Handle negotiations with multiple insurance companies
Identify bad faith insurance practices
Pursue legal action against other liable parties

Attorneys also have the knowledge to structure settlements in ways that maximize recovery and protect clients from unnecessary financial strain.

Policy limits play a critical role in determining how much compensation you can receive after a car accident. While they set a cap on what an insurance company will pay, they don’t always represent the end of your options. By understanding how policy limits work, carrying adequate insurance yourself, and seeking legal guidance, you can improve your chances of recovering the full amount you need to move forward after a crash.

If you’ve been injured in an accident and are concerned about policy limits affecting your case, consulting with a skilled car accident attorney can help you explore every possible avenue for compensation.