Insurance policy limits are the maximum amount of money your insurer is required to pay out if you file a claim. For instance, if you have a “100/300” bodily injury liability policy, it means that your insurance company will pay a maximum of $100,000 for a person’s injuries, and up to $300,000 total for the injuries of every person in the car you hit. In this case, your policy limit is where your insurer’s responsibility of paying up for the injuries of the victims ends and yours may begin (if you are at fault for the accident).

Understanding insurance policy limit is important because it will help you protect your hard-earned assets. For instance, if your net worth is high, you may want to purchase a higher policy limit. In case you caused an accident, your car insurance company will be able to make a reasonably high offer which may prevent the other driver from bringing the case to court and get money beyond what your insurer can pay.

Also, knowing the insurance coverage limits of the other driver is critical if you get involved in a car accident for which you are not at fault. If you are not aware how much policy limit the negligent driver has, you might end up accepting an amount smaller than what you actually deserve thinking that the other has less insurance to pay you with. You access information on the negligent driver’s policy limits by asking him or her, sending a demand letter to his or her insurance company, or getting assistance from your insurer or lawyer.