If a car accident claim exceeds your insurance limits, you may be personally responsible for paying the remaining costs out of pocket. This can include medical bills, vehicle repairs, or legal damages not covered by your policy. Car insurance only pays up to the coverage limits listed in your policy. Once those limits are reached, any additional expenses become your responsibility.
For example, if your policy covers up to 50 thousand dollars and the total claim is 80 thousand, you may be required to pay the 30 thousand dollar difference out of pocket. This can lead to lawsuits, wage garnishment, or liens against your property if you are unable to pay.
In this blog, we will explain how insurance limits work, what happens when they fall short, and what you can do to protect yourself from major financial losses. Understanding this risk is important for every driver and policyholder.
Understanding Car Insurance Limits
Every car insurance policy has coverage limits. These limits define how much the insurance company will pay if you are found responsible for an accident.
There are two main types of limits in liability insurance:
- Bodily injury liability: Covers medical expenses, lost wages, and pain and suffering for injured persons in the other vehicle
- Property damage liability: Covers repairs or replacement of the other person’s vehicle or other damaged property
These limits are often shown as split limits. For example, your policy might state limits of 25 thousand dollars per person, 50 thousand dollars per accident, and 25 thousand dollars for property damage.
This means your insurer will pay:
- Up to 25 thousand for each injured person
- Up to 50 thousand total for all injuries in the accident
- Up to 25 thousand for property damage
Anything beyond these limits becomes your responsibility.
Example of a Claim Exceeding Limits
Let us say you cause a major accident involving three people. The accident results in the following expenses:
- Driver 1 medical bills: 30 thousand dollars
- Passenger medical bills: 20 thousand dollars
- Another vehicle damage: 15 thousand dollars
You have insurance limits of 25 thousand per person, 50 thousand per accident, and 10 thousand for property damage.
In this case:
- Your policy pays 25 thousand to Driver 1 (but 5 thousand remains unpaid)
- It pays 20 thousand to the passenger
- Total for bodily injury reaches 45 thousand of the 50 thousand limit
- Your policy only covers 10 thousand for property damage, leaving 5 thousand unpaid
That leaves 10 thousand dollars of costs that exceed your insurance. You are now personally responsible for that amount.
What Happens to the Extra Amount?
If a claim exceeds your insurance coverage, the unpaid balance does not disappear. The injured parties may come after you for the remaining amount. This can happen in several ways:
1. You Are Sued Personally
The injured party can file a lawsuit against you to recover the difference between your insurance payout and the actual damages. If the court rules in their favor, you may be ordered to pay the balance.
2. A Judgment Is Entered Against You
If you lose the lawsuit, a court judgment may be placed against you. This judgment can be used to collect money from you in the future.
3. Your Assets May Be at Risk
The court may allow collection methods such as:
- Wage garnishment
- Seizing assets such as vehicles or property
- Placing a lien on your home or future earnings
This is why it is important to carry enough insurance to protect yourself from these risks.
What to Do If You Are at Fault and the Claim Exceeds Your Coverage
If you are responsible for an accident and the claim is larger than your coverage, here is what you should do:
1. Notify Your Insurance Company Immediately
Your insurer will assign a claims adjuster and begin their own investigation. Make sure to provide honest and accurate information.
2. Cooperate Fully with the Investigation
Answer all questions and submit any requested documents. Your cooperation may affect how the claim is processed.
3. Ask the Insurance Company to Settle Within Limits
You or your attorney can request that the insurer try to settle the case within your policy limits. If they fail to do this and a lawsuit follows, they may be held responsible for the full amount in some cases.
4. Hire a Personal Injury Attorney
If a lawsuit is filed against you, consult a lawyer immediately. They can help protect your rights and may be able to negotiate a lower settlement or payment plan.
Can the Insurance Company Be Held Liable for the Full Amount?
In certain situations, yes. If the insurer had a chance to settle the claim within the policy limits but refused to do so unreasonably, they may be found responsible for the full judgment even if it exceeds your coverage.
This is called bad faith insurance conduct. It occurs when:
- The insurer fails to act in your best interest
- They refuse a fair settlement offer
- Their delay or denial increases your financial risk
Courts may require the insurer to pay more than the policy limit in these cases. However, proving bad faith is difficult and usually requires legal support.
What If You Have an Umbrella Policy?
An umbrella policy provides extra liability protection beyond your auto insurance limits. It can cover injuries, property damage, legal costs, and personal liability.
Example:
- Your auto policy limit is 50 thousand dollars
- You have a one million dollar umbrella policy
- A serious accident causes damages of 400 thousand dollars
In this case, your auto policy pays the first 50 thousand and your umbrella policy covers the remaining 350 thousand. You do not pay anything out of pocket.
Umbrella policies are affordable for the coverage they offer and are a smart option for people with assets to protect.
What If You Are Not at Fault?
If you are not responsible for the accident, your insurance limits do not come into play. The other driver’s liability insurance should cover your damages.
However, if the at-fault driver is underinsured or uninsured, you may need to use:
- Uninsured motorist coverage
- Underinsured motorist coverage
- Collision coverage for vehicle repairs
These options help pay for your expenses when the other driver cannot. You may still face limits, but the financial burden is not on you unless you reject these coverages.
How to Protect Yourself from This Situation
You cannot always prevent accidents, but you can protect your finances by taking the following steps:
1. Increase Your Liability Limits
Minimum required coverage may not be enough. Consider limits of at least:
- 100 thousand per person
- 300 thousand per accident
- 100 thousand for property damage
Higher limits provide more protection and peace of mind.
2. Purchase an Umbrella Insurance Policy
Umbrella policies start around one million dollars and offer low monthly premiums. They are ideal for high-income earners, homeowners, or anyone with savings and investments.
3. Review Your Policy Annually
Make sure your coverage matches your lifestyle, assets, and risk level. As your financial situation grows, so should your protection.
4. Drive Safely and Stay Alert
Defensive driving reduces the risk of causing a major accident. Avoid distractions, obey traffic laws, and stay within speed limits.
What Happens If You Cannot Pay?
If you are ordered to pay damages beyond your insurance and cannot afford it, the court may:
- Allow payment plans
- Place liens on property
- Garnish wages over time
- Freeze bank accounts
- Report unpaid judgments to credit bureaus
You may also explore:
- Settlement negotiations: You can try to settle for a lower amount
- Bankruptcy: This can wipe out certain debts but comes with serious consequences
You should speak with a financial or legal advisor if you are facing a large judgment that you cannot pay.
FAQ: People Also Ask
You are personally responsible for the difference between your insurance payout and the actual cost of damages. This can result in lawsuits, wage garnishment, or asset seizures.
No. You will not face jail for being underinsured. However, failure to pay court-ordered damages can lead to legal trouble.
No. They only pay up to your policy limits. Anything beyond that is your responsibility unless you have umbrella coverage.
Yes. You can request that your insurer offer a settlement equal to your coverage limit. If the other party agrees, it prevents further legal action.
Your policy has a total accident limit for bodily injury. If that amount is used up, the remaining victims may seek compensation from you directly.
Final Thoughts
Accidents that cause damage beyond your car insurance limits can lead to serious financial consequences. If you are at fault and your policy cannot fully cover the costs, you may be personally responsible for the remaining amount. This can lead to lawsuits, wage garnishment, and long term financial stress.
To avoid this risk, always carry enough liability coverage and consider adding an umbrella policy for extra protection. Be proactive and review your coverage regularly, especially if your financial situation changes.
At Alias Insurance, we make it easy to compare car insurance policies from trusted providers so you can find the right coverage limits at the best rate. Do not wait until an accident happens, get your free quote today and protect your future.
References
- National Association of Insurance Commissioners (NAIC) – Auto Insurance Basics
- Insurance Information Institute – Understanding Auto Liability Insurance
- Nolo – What Happens If You’re Sued for More Than Your Insurance Covers
- FindLaw – Insurance Coverage Limits and Lawsuits
- Consumer Financial Protection Bureau – Understanding Insurance Responsibilities
