DEFINITION of Split Limits
Split Limits are a provision of an insurance policy that states different maximum dollar amounts the insurer will pay for different components of a claim. A policy with split limits might pay $100,000 per person per incident for bodily injury, with a maximum of $300,000 per incident. If one person seeks $250,000 in damages for their injuries, the maximum the split limit policy will pay is $100,000, even if only one person is injured in the accident. The only way the split limit policy will pay the $300,000 maximum is if three different people each have $100,000 in claims.
BREAKING DOWN Split Limits
The opposite of a split limit is a combined single limit, which limits the coverage for all components of a claim to one dollar amount. A combined single limit policy states that the insurer will pay up to, say, $300,000 for a single claim; it doesn’t matter whether one person claims $300,000 in medical bills or whether three injured parties each claim $100,000 in medical bills. The combined single limit maxes out at $300,000 either way.
How Split Limits Work
Split limit policies, since they offer a narrower insurance coverage, tend to have lower premiums. To get broader coverage, you can pay more for a combined single limit policy. Another way to obtain broader coverage than what’s offered under either type of policy is to purchase a personal umbrella liability policy. This policy will provide extra coverage after your automobile and homeowners insurance are exhausted. It will even cover some types of claims that neither policy covers. Regardless of which type of limit your insurance policy uses, an umbrella policy is a good idea to make sure you’re fully covered , if, for example, you’re held liable for a very expensive accident. If you’re found at fault for a five-car automobile accident and get sued for $2 million, the $300,000 policy will barely make a dent in how much you owe whether it’s a split limit policy or a combined single limit policy.
Having a single-limit policy can eliminate the need for an umbrella policy, but since this coverage is more expensive it's wise to compare the cost of the two. Also, carefully consider what assets would be exposed if you are sued. Retirement accounts are generally exempt and in some states your home can't be sold off to pay a judgment. This is an important component of financial and estate planning that's often worth getting a professional evaluation.