Split Limits: What They are, How They Work

What Is a Split Limit?

A split limit is an insurance policy provision that states different maximum dollar amounts the insurer will pay for different components of a claim. These policies, also referred to as split liability policies, are commonly part of the automobile insurance industry and generally come with three types of claims: bodily injury per person, bodily injury per accident, and property damage per accident.

Understanding Split Limits

Most vehicle insurance companies have policies that cover different types of claims using the split limit approach. This means there are three different dollar amounts that cover each accident or incident involving your vehicle. As mentioned above, these categories are:

• Bodily injury per person: The maximum an insurer will pay to a single person for medical bodily injury in an accident.
• Bodily injury per accident: The maximum amount a company will pay to all parties injured in a single accident.
• Damage to property per accident: The amount an insurance company pays to cover all damage to property in one accident.

The liability limits set by insurance companies are generally expressed in numbers. For example, a split limit policy may impose limits like 100/300/50. This means the policy pays $100,000 per person per incident for bodily injury, with a maximum of $300,000 per incident. The limit for property damage per incident, meanwhile, would be $50,000 under this policy.

But what happens 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.

Split limit policies tend to be more cost-effective options for insured parties. Since they offer narrower insurance coverage, split limit policies tend to command lower premiums.

Split Limit vs. Combined Single Limit Policies

To get broader coverage, insured parties can pay more for a combined single limit (CSL). A CSL policy is the opposite of a split limit, limiting the coverage for all components of a claim to one dollar amount.

For example, the CSL policy may state that it will pay out $300,000 for a single claim. In that case, it doesn’t matter whether one person claims $300,000 in medical expenses or whether three injured parties each claim $100,000 in medical bills. The combined single limit maxes out at $300,000 either way.

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. 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.

Split Limit vs. Umbrella Liability Policies

The coverage provided under a split limit or combined limit policy may not be enough. In order to obtain broader coverage, consider purchasing a personal umbrella liability policy. This type of insurance provides extra coverage after your automobile and homeowners insurance are exhausted.

For example, say you’re held liable for a very expensive accident. 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. In this case, the umbrella policy is a good idea to make sure you’re fully covered.