What Happens When A Car Accident Claim Exceeds Insurance Limits?

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If you are involved in a car accident and the damages exceed your insurance policy limits, you may find yourself in a bad situation. In this case, your insurance company will only pay up to the maximum limit of your policy, leaving you to pay for any additional costs out of your own pocket. In other words, if you don’t have enough coverage, you will be sued for any additional costs that you are responsible for.

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Before we dive into more detail, let’s talk about what you could be sued for and what the coverage on your auto insurance policy is for:

The main function of a car insurance policy is to provide you liability coverage. Liability coverage protects you in the event you cause an accident and cause medical injuries to other people or cause property damage to other’s property, such as their vehicle.

In other words, if you cause an accident, your liability insurance will cover the damage…IF you have enough coverage. 

For example, if your insurance policy has a limit of $50,000 for bodily injury liability and the other driver in the accident has medical bills that total $75,000, your insurance company will only pay up to $50,000. This means you will be responsible for paying the remaining $25,000 out of your own pocket. This is not something that most people are prepared to do! 

It’s important to note that if you are found liable for damages that exceed your insurance policy limits, the other party may seek legal action against you to collect the remaining balance. This can result in wage garnishment, liens on property, or other legal actions that can have a significant impact on your financial situation. 

To avoid these kinds of situations, it’s important to review your insurance policy limits regularly and make sure you have enough coverage to protect yourself in case of an accident. You may also want to consider purchasing an umbrella policy, which provides additional liability coverage beyond the limits of your existing policies. 

At Heritage, we always recommend liability limits of 250/500 with a $1 million umbrella. This means that your normal policy would pay out $250,000 per person and $500,000 per accident, for an accident that you caused. If/when those limits are exhausted, then the $1 million umbrella would kick in to help cover additional damages.

In summary, if your car accident claim exceeds your insurance policy limits, you may be responsible for paying the remaining balance out of your own pocket, which can have significant financial consequences. To protect yourself, it’s important to review your policy limits regularly and consider additional coverage options like an umbrella policy. 

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