Understanding Insurance Limits
As you navigate the process of buying insurance, you’ll have a number of decisions to make, including what types of coverage to purchase and the amounts of any applicable deductibles. One the most important decisions you’ll face is selecting the amounts of your insurance limits within a given policy. The article below explains what insurance limits are and how they play a role in buying insurance as well as filing a claim.
What Is an Insurance Limit?
The insurance limit listed in your insurance policy represents the maximum amount your insurance company will pay under that policy. The limit might apply on a per occurrence basis, or on an aggregate basis. For example, a per occurrence basis could be a $25,000 maximum payout for bodily injuries to a single person in a single car accident. An example of an aggregate insurance limit would be the annual limits on non-essential health benefits under your health insurance plan. If your claim or claims are more than the limits on your policy, you’ll be on the hook for the amount above those limits.
Insurance plans may also include limits on the amount of money you have to pay out of pocket for different benefits. For example, your Medicare prescription plan may cap the amount you pay in deductibles or copays every year.
Types of Insurance Limits
Different types of insurance will have different kinds of coverage limits. The following are a few of the more common types of insurance coverage and how their limits are listed:
Typically, car insurance laws and policies will list liability limits as a set of three numbers, such as 25/50/10. These stand for the coverage limits when you’re responsible for an accident: $25,000 for bodily injury per person, $50,000 total bodily injury coverage per accident, and $10,000 for property damage per accident. The limits for other types of coverage, such as personal injury protection (PIP), collision, and comprehensive coverage are usually listed as a single amount for each type.
A homeowners policy will also list separate limit amounts for different categories of coverage. There will be one limit amount for liability coverage, in case you’re sued by someone for injuries or property damage that occurs on your property. And there will be other limit amounts for damage to your home and damage to your personal property inside the home.
Health care laws are constantly in flux, and many annual and lifetime health insurance limits are prohibited. However, you can still find health insurance policies that list annual limits or limits on the number of times you can receive certain types of treatment, such as chiropractic services, acupuncture, and orthotics. Insurance companies may also place limits on prescription drugs in order to keep costs down. These may include quantity limits (such as 30 pills within 30 days), and “step therapy” which requires less expensive drugs to be tried first.
How Are Your Insurance Limits Determined?
A number of factors help determine the insurance limits for a given policy. First, there may be federal or state laws applicable to certain types of insurance. For instance, each state sets the minimum requirements for auto insurance liability limits to ensure drivers carry at least a certain amount of coverage. Likewise, federal law currently prohibits health insurance companies from imposing lifetime and annual limits on essential health benefits.
Your insurance limits will also be determined according to your own needs and circumstances. For example, you might need your homeowners insurance to provide a dwelling coverage limit that that covers the amount it would take to rebuild your $450,000 home. On the other hand, your limits may also be dictated by what you can afford. Generally, higher limits correspond to higher monthly premiums, so you’ll need to balance your insurance needs with what you can afford on a monthly basis.
Understand Your Insurance Limits and Your Insurance Rights
As insurance laws become more numerous and policies become more verbose and complicated, it can be very difficult to know what the terms of your policy are as well as your rights under that policy. But you’ve been paying for certain benefits and many laws exist to protect insurance consumers. Whether your claim has been denied or you’re battling an uncooperative insurance company, contact a local insurance attorney who can explain your benefits and protect your rights.