Car insurance policy limits can be confusing at first because they are not the same as your deductible, and they do not always show up clearly on a bill. Still, policy limits are one of the most important parts of any auto insurance policy. They help define the maximum amount an insurer will pay for a covered claim.
If you ever wondered why two people can have “full coverage” but different protection, policy limits are a big reason. Limits can affect both how much protection you have and how much you pay for your policy.
In this guide, you will learn what car insurance policy limits are, how they work in real life, and how to read common limit formats so you can understand your coverage more clearly.
Definition / Core concept
Car insurance policy limits are the maximum amounts your insurer will pay for a covered loss under a specific coverage. Think of a limit as a ceiling. If the total covered cost is higher than the limit, you may be responsible for the remaining amount (depending on the claim and the coverage).
Policy limits apply to many parts of an auto policy, especially liability coverage. They can also apply to other coverages, depending on what you have and what your state requires.
It also helps to separate a few key terms:
- Policy limit: the most the insurer will pay under a coverage
- Deductible: what you may pay out of pocket before certain coverages pay
- Premium: what you pay to keep the policy active
How it works in practice
Here is a simple way to understand how car insurance policy limits work during a claim:
- A covered event happens. For example, you cause a crash that damages another car.
- The claim is evaluated. The insurer reviews fault, coverage, and damages.
- The relevant coverage applies. In this example, liability property damage coverage may apply.
- The insurer pays up to the limit. If damages exceed the limit, the extra amount may become your responsibility.
Example: If your property damage liability limit is $25,000 and you cause $40,000 in damage, the insurer may pay up to $25,000 (if covered), and you could be responsible for the remaining $15,000.
This is why limits matter even for careful drivers. A single serious accident can exceed a low limit, especially when vehicles, repairs, and medical costs are high.
Main types, coverage, or variations
Auto policies can include multiple coverages, and each may have its own limit. Below are the most common areas where car insurance policy limits come up.
Liability limits (most common)
Liability coverage helps pay for injuries or property damage you cause to others. It is often written as three numbers, such as 25/50/25. These typically represent:
- Bodily injury per person (example: $25,000)
- Bodily injury per accident (example: $50,000 total for all injured people)
- Property damage per accident (example: $25,000)
The exact format and minimum requirements vary by state. If you want a simple overview of legal requirements, see Is Car Insurance Required by Law in the U.S.?
Uninsured/underinsured motorist limits
Uninsured/underinsured motorist coverage can help when another driver causes a crash and does not have enough insurance (or any insurance). These coverages often have limits too, and in many states the limits are related to (or cannot exceed) your liability limits.
PIP or MedPay limits (where applicable)
Personal Injury Protection (PIP) or Medical Payments (MedPay) may cover medical expenses for you and your passengers, depending on state rules and your policy. These coverages often have a stated limit (for example, a specific dollar amount).
Physical damage limits (collision and comprehensive)
Collision and comprehensive typically pay up to the value of your vehicle (often related to actual cash value) rather than a simple “25/50/25” style limit. These coverages often involve deductibles more than stated limits, but there is still an effective cap based on the covered value of the car and policy terms.
How policy limits can affect your premium
Car insurance policy limits can affect your premium because higher limits usually mean the insurer could pay more in a serious claim. However, your premium also depends on many other factors, including your driving record, vehicle type, location, and the coverages you choose.
Limits that commonly influence cost include:
- Higher liability limits: generally increase premium, but provide more protection
- Lower liability limits: may lower premium, but increase your out-of-pocket risk in a major accident
- Adding umbrella coverage: separate policy that may increase total protection above auto limits (not part of auto policy limits, but related)
Also note: state minimum limits are not the same as “recommended” limits. Minimums are legal requirements. Whether they are enough for your situation depends on your risk, assets, and comfort level (and is worth discussing with a licensed professional if you want personal guidance).
Common questions or misunderstandings
Are policy limits the same as a deductible?
No. A deductible is what you may pay out of pocket before certain coverages pay. A policy limit is the maximum the insurer will pay under a coverage.
What happens if damages exceed my policy limits?
If a covered loss is higher than your limit, you may be responsible for the remaining amount. The details depend on the claim, the coverage, and state law.
Do policy limits apply per month or per year?
Usually no. Many limits apply per claim or per accident. Some coverages (like certain medical benefits) can have different structures depending on the policy and state rules.
Why do I see three numbers like 25/50/25?
That format is commonly used for liability limits. It usually means bodily injury per person / bodily injury per accident / property damage per accident.
If I have “full coverage,” do policy limits still matter?
Yes. “Full coverage” is not a standard legal term. Policies still have limits, exclusions, and deductibles. You can have “full coverage” and still have limits that may be too low for certain situations.
Important to Know
Car Policy Answers is an independent educational website. We do not sell insurance, provide quotes, or recommend insurance companies.
The information in this article is intended for general educational purposes only. Coverage rules vary by state and policy, and claim outcomes depend on the facts of the loss.