How do insurance coverage limits work?
Your policy's coverage limits are the maximum amount your insurer may pay out for covered claims. If you file a claim with your insurer or have a claim filed against your insurance, and the costs exceed your coverage limit, then you may be responsible for any remaining expenses that aren't covered by your insurance.
Keep in mind that a higher coverage limit usually means a higher insurance rate, and that not all insurance coverages have or allow you to choose a coverage limit.
Car insurance limits explained
Some types of insurance, auto insurance especially, offer a range of coverage limits for any given coverage type. For example, most U.S. states require a minimum limit for liability coverage on an auto insurance policy, but you can choose higher liability limits to better protect your assets if you're responsible for someone else's injuries or damaged property.
Liability coverage limits on car insurance are typically shown as three separate numbers. If you carry auto insurance with liability coverage limits of $50,000/$100,000/$30,000, those numbers are broken down as follows:
- $50,000: The maximum amount your insurer will pay for bodily injuries per person.
- $100,000: The total amount your insurer will pay for bodily injuries per accident.
- $30,000: The maximum your insurer will pay for property damage per accident, such as repairing the other driver's vehicle in an accident where you were at fault.
For other types of auto insurance coverages, such as comprehensive car insurance coverage and collision car insurance coverage, your insurance limit is often the actual cash value of your car.
Learn how much car insurance you may need.
Home insurance limits explained
Dwelling limits
On your home insurance policy, some lending institutions like mortgage and finance companies require you to have enough dwelling coverage to cover your loan amount. Some insurers will base your dwelling coverage limit on the replacement cost of your home, which is determined by its age, size, and other features.
For these reasons, you may not be able to choose your dwelling coverage limit. If you do have a choice on your dwelling limit, research how much it might cost to rebuild your home and aim for that amount of coverage. Your other structures coverage limit is generally a percentage of your dwelling coverage.
Personal property limits
Your personal property coverage limit is typically 50% of your dwelling limit, though this may sometimes be increased or decreased. Homeowners policies may also have additional coverage limits called sub-limits for specific items like jewelry and firearms. If you want specific items to be covered up to their full replacement cost, consider "scheduling" them with a rider, also known as an endorsem*nt.
Learn the differences between replacement cost and actual cash value.
Loss of use limits
Insurers vary in how they set coverage limits for loss of use (living expenses above and beyond your normal costs incurred while your home is being repaired or rebuilt due to a covered loss). Some policies offer coverage for hotels and meals for a set amount of time, while others set the coverage limit at a specific dollar amount or percentage of your dwelling coverage limit.
Personal liability limits
For homeowners, personal liability coverage may provide protection if you or a resident relative is found at fault for bodily injury or damage to another person's property. You may be able to choose your personal liability coverage limit; often the three choices are $100,000, $300,000, or $500,000. Your limit typically applies to covered damages that you're legally liable for.
Get tips for figuring out how much homeowners insurance you need.
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