Policy limits can be either an advantage or disadvantage during the car accident claims process. While it can be a bargaining chip during a lawsuit when the company is trying to avoid paying the benefits to which the insured is entitled, it can also open a policyholder up to a lawsuit when the policy limits are not enough to cover the resulting damages.

Understanding the Meaning of Policy Limits

There are limitations attached to every insurance policy. These limitations refer to the maximum amount the insurance company will pay on behalf of the policyholder no matter how severe the injuries may be to others involved in the accident. The term for this limitation is “policy limits.”

You will usually hear references to policy limits as both per person and per occurrence limits. For instance, Texas law requires normal drivers to carry insurance with minimum personal injury limits of $30,000 per person and/or $60,000 for each occurrence.

It’s easy enough to understand what the first part of the limitations means: a requirement for the insurance company to pay up to $30,000 to an individual who is involved in an accident. The second part is a little more difficult to understand and means there is a maximum amount an insurance company is required to pay in an accident no matter how many people are injured.

The Effect of Policy Limits on Individual Cases

In most cases, liability insurance provisions allow the insurance company complete control over the defense of any claims another party places against an insured. Part of this right also implies that the insurance company has a duty to the insured not to gamble with his or her money by refusing any opportunities which may allow a reasonable settlement of a claim without the insured having to face an excess judgment.

In most cases when the insurer has an opportunity to settle and refuses that offer, the plaintiff is typically willing to accept an assignment of the insured’s rights against the insurer. This assignment means the plaintiff makes a promise to collect the judgment from the insurer and not to attempt to execute against any of the assets of the insured. Although the risk of collection is on the shoulders of the plaintiff, his good-faith agreement to settle means he must insist the insured make demands on the insurer to settle.

Texas Requirements and Averages

Like other states, Texas requires drivers to carry mandatory liability insurance for property damage and personal injury. As mentioned earlier, bodily injury requirements are $30,000 per person and $60,000 per accident and property damage of $25,000—most drivers tend to carry insurance that exceeds this minimum requirement. While uninsured motorist’s coverage is not required under Texas law, many people choose to carry $25,000 per person or $50,000 per accident in order to protect themselves.