I was reviewing a car insurance quote with a prospective client the other day. She and her husband are buying a new home and wanted to review their car insurance to see if they could save money on that as well. We were in the midst of discussing liability coverage when she asked me to explain the difference between split limits and combined single limits as she’d heard someone mention this to her.
The liability coverage on a Texas car insurance policy is the coverage that protects you financially when you hit someone and are at fault. It’s designed to pay for medical care if someone in the other car is injured from the collision, as well as to repair their car. If the other car is totaled, then liability coverage pays for the depreciated value of their car.
These two types of coverage are referred to as BIPD or bodily injury / property damage. Most people purchase car insurance with split limits which simply means the limits of liability coverage are split into two to three different numbers such as 100/300/100.
The first number represents the maximum amount of medical coverage that will be paid to any injured person in the car you just hit. In this case, the maximum medical care that will be paid is $100,000.
The second number, $300,000 in this case, represents the maximum medical coverage available to all people in the other car that are injured. No one, however, receives more medical coverage than the first number of $100,000.
The final number represents the property damage component of the liability coverage. In this case, $100,000 is available to repair the car you hit, or pay for the depreciated value of their vehicle if it’s totaled.
Car insurance policies with a combined single limit take all three numbers as represented with a split limit policy and combine them into one number such as $100,000, $300,000, $500,000, or even $1,000,000 depending on the insurance company. The maximum amount the policy will pay for an accident where you’re at fault is represented by this one single number.
The single limit can be used to pay for both medical care and property damage in whatever way is needed without worrying about a per person cap. It also comes in handy if you happened to hit a very expensive car that exceeds the $100,000 property damage liability limit.
Most of our clients purchase split limit car insurance policies as that’s what fits them best. For our clients with more financial assets or a particular career path (doctors, lawyers, architects, engineers, business owners, etc.) who are more susceptible to being sued, I will compare split limit options with combined single limit options. In many cases, the pricing difference is minimal. Even with the pricing difference, the greater degree of flexibility may make the combined single limit option more attractive. Combined single limit coverage is also available on the uninsured / under insured portion of most car insurance policies too. If I’ve recommended combined single limits on the liability coverage, I usually recommend a combined single limit on the UM/UIM coverage too.
In the case of my prospective clients, they elected to go with the split limits. It simply fit them better based on where they are today. Which limits do you have and why? Share your comments, experience, and questions with me in the comments section of our blog or on our Google + and Facebook pages. I’d love to hear from you!