Understanding Limits

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What are insurance limits?

Understanding Limits

When searching for minimum car insurance coverage, you might be tempted to choose limits that are lower than you actually need. Limits are the maximum insurance benefits that you car insurance policy will pay out on a claim if your car is totaled. The lower your limits are, the less expensive your car insurance will be, since lower limits mean lower risk for the insurer. With ultra-low limits, you run the risk of having too little insurance benefit and not being made whole after an insurable incident.

Your limits may be based on either the fair market value of your car or its replacement value. If your limits are based on replacement value, then you should choose a limit that's enough to actually buy a new car like the one that you had. If your plan has limits based on fair market value, then you can afford lower limits because you'll be given the value of the car you actually had (with depreciation), rather than what you need to actually replace it. As a guide, use the Kelley Blue Book value of your car to get an idea of its fair market value.



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