Coverage limits apply to all insurance policies, such as collision insurance, on automobiles. Insurance companies set maximum limits that they will pay based on a number of factors. One of the most important of these is the value of the vehicle. The make, model, and year determine the value of the vehicle, and typically more powerful, more expensive vehicles will cost more to insure.
Insurers also factor in the uses to which the vehicle will be put, and will make determinations based on how many miles the vehicle is likely to be driven daily and annually, as well as in what areas and types of terrain. They will consider whether the vehicle is being used for recreational purposes, for work, or for the normal everyday uses of individuals or families. They will ask who will drive the vehicle, what their ages are, and will investigate everyone's driving records. They will put all this information together to calculate quotes and set limits of coverage.
The person buying the policy can, of course, attempt to negotiate terms that better suit their requirements and financial possibilities. One of the ways in which they could influence the financial insurance quotes is by agreeing to the highest deductibles with which they are comfortable. In an insurance agreement that includes a deductible, the policyholder agrees to pay a certain portion of the costs of any claims filed, and the insurance will agree to pay the remainder. It follows then, that if the policyholder agrees to pay a higher deductible, the insurer will save some money. As reward and incentive for this, the insurance company offers the policyholder a deduction in rates.
Property Damage Limits
That a person is liable for something means that the person is responsible. Liability has a negative connotation, because it implies that the person is being held responsible for something that goes wrong. So a person is liable for damages if that person is the cause of an accident that injures another person or that damages the property of another. In these cases, liability is assessed as a financial matter and a particular value is attached.
For the most part the insurance companies and their customers agree on these limits on a case by case basis. Property damage liability limits are quite formulaic. They are set according to market values for either the estimated cost of repairs, the actual cash value of the property, or the amount that it would cost to replace it at the current market prices.
Personal Injury Limits
Personal injury coverage is assessed quite differently, although this, too, takes into account some quite objective criteria. There is no determined monetary value set on pain and suffering because of the very personal and subjective nature of those things. Figures attached have varied from case to case, and from place to place. However, the laws of most states do place a lower limit on the amounts a person can be compensated for different kinds of bodily injury sustained in a roadway accident. They make it illegal to offer any less than that amount, and insurance carriers will reflect these in the rates they charge. They also require individual limits for each peril they insure against, and also insist on a limit to the amount they will pay for each person injured in an accident, and set a limit on the amount they will pay for each accident for which a claim is filed.
Insurance agents will include considerations of a person's estimated financial worth when discussing coverage limits, and their recommendations will safeguard their customer's financial position should a catastrophic accident ever occur.