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Single and Split Limits

Personal liability insurance which is included within today’s auto insurance policies is sold as either single-limit or split-limit coverage, and the proportion of each type is approximately even. Single-limit coverage specifies one overall maximum amount per accident which the insurer is liable for, irrespective of how a claim is comprised between injury, property damage or loss. A typical insurance amount for single limit coverage is $300,000. With this amount of coverage, the insurance company would be liable for a maximum aggregate payment of $300,000 for personal liability due to injury, property damage or loss suffered under each accident.

Split-limit coverage works in a different way, by specifying the maximum amounts payable in each of three categories as follows:

  1. The injury limit per person;
  2. The injury limit per accident;
  3. The property damage limit per accident.

For example, a typical split-limits policy might have the following individual limits:

  • Injury limit per person: $100,000;
  • Injury Limit per accident: $300,000; and
  • Property damage limit per accident: $50,000.

How do these coverage limits compare with a single-limit coverage of $300,000? Given that the split-limits coverage pays out up to $50,000 in property damage in addition to its $300,000 maximum payment for injuries, and the single-limit coverage includes property damage within its single liability limit of $300,000, the split-limits coverage would be a better choice, right? Wrong! Let’s take an example.

Suppose you cause a car accident for which a court orders compensation of $20,000 for damage to the other car, $170,000 in compensation for injury, loss of earnings and pain and suffering to the driver, and $60,000 in injury, pain and suffering to a passenger in the other car. Under single-limit coverage all of the court-ordered compensation, amounting to $250,000, would be fully covered, whereas under split-limits coverage the insurer would only be liable for $100,000 in compensation for the driver of the other car, leaving you with the balance of $70,000 to pay from your own resources.

Split-limits coverage can give you a false sense of security, and for that reason it can be dangerous. At first glance it appears to provide adequate protection by specifying a comparable maximum injury payout, and to pay for property damage in addition to that, but splitting out the coverage effectively transfers risk to yourself. In comparing split-limits coverage, focus more on the per-person injury limit than the per-accident limit. Remember, the majority of passenger vehicle accidents in the US result in injury or death to just one other person, not more.

Remember too that personal liability insurance limits include payment of legal fees. Those fees can go as high as $100,000 or more in defended cases, significantly reducing the amount payable by the insurance company in compensation to someone who successfully takes a lawsuit against you. It is therefore quite possible that, after payment of legal fees, your liability coverage would have nothing left over to settle a judgment which a court orders against you.

Taking all of this into consideration, the best approach is to:

  1. Avoid split-limits coverage in favor of single-limit coverage;
  2. Go for the highest liability limit which your primary policy allows;
  3. Buy umbrella insurance to top up your coverage even further, and to cover the gaps.