January 15, 2010

What You Need To Know About Split Limit Auto Insurance Coverage

When purchasing auto insurance coverage, you need to know that insurance companies use the concept of split limits to reduce the cost of a policy. If they successfully reduce that cost, that enables them to offer the consumer a more attractive auto insurance quote.

When an insurance carrier sets the limits on a split limit auto insurance policy, it provides two numbers like this, 100,000/300,000. The first number represents the amount of money that would be paid to a claimant in an accident. The second number represents the total amount of money that would be paid to ALL claimants in an accident. For instance, if the liability policy were designated as 100,000/300,000 a claimant would be entitled to $100,000 in the event of an accident. If there were multiple claimants, each would be entitled to no more than $300,000 among all of them. If there were more claimants than $300,000 is evenly divisible by, the adjustor handling such a claim would have to apportion each claimant an equitable figure.

The term split limit’is used, as opposed to the term ‘combined single limit.’In a combined single limit plan, there is only one figure, say $300,000. In the event of an accident, that amount has to be divided among claimants, which results in the same outcome as the split limit plan. However, it is when there is only a single claimant that there is a difference. This is because there is no additional cap, like the $100,000 applied above. A single claimant could possibly receive payment of the entire $300,000. Split limit auto insurance is generally used in bodily injury coverage, uninsured (and underinsured) motorist coverage, and property damage. The property damage limit may be tacked on at the end, producing a string of three numbers. A policy designated as $25,000/$50,000/$25,000 would work in the same manner, only with lower payouts. The third figure would be the cap on the property damage, which is not split. Uninsured, or underinsured motorist coverage is used to protect you in the event you are involved in an accident with an uninsured driver. Just as you can select limits on your bodily injury protection, you can select limits on your uninsured and underinsured motorist coverage. This can be particularly important in states such as Texas, where there is a high percentage of uninsured motorists.

Although the technique of splitting liability limits is an effective means of saving money, it is not used in all policy areas. No-fault benefits are a good example of a single limit type of coverage. However, you will find, that most of your car insurance coverage will come with a split limit.