The coverage of an insurance policy is the monetary amount which may be paid in benefits by the insurer to the insured party in the case of a claim against that policy. The coverage may be split into different amounts for different eventualities and it may be limited on a per-claim or per-policy basis.
What is per-claim coverage?
Per-claim coverage is the total amount insured in the event of any single claim made under the policy for example; if you have a per-claim insured amount of $20,000 and you make a claim for $30,000 you would need to pay the excess $10,000 yourself irrespective of the per-policy limit.
What is per-policy coverage?
Per-policy coverage is the total amount insured in the event of any number of claims made under the same policy. For example; if you have a per-policy limit of $50,000 you could make five claims of $10,000 or ten claims of $5,000 and as long as your claims do not exceed the per-claim limit, you could reasonable expect your insurer to pay out the maximum value of the policy.
If you exceed the per-policy coverage through any number of claims or a single claim, you will be personally liable for the balance.
How is coverage calculated?
The insurer will typically work with an insurance actuary whose job is to assess the risks associated with people who have similar characteristics to yourself. The actuary will then make a recommendation as to the level of likelihood that you will need to make a claim under your insurance policy and what the risks are to the insurer.
Using this information the insurer will work out how much they are likely to pay out in benefits to the insured group, and then make an assessment of how much they will need to charge per unit of coverage (e.g. per $ they are going to have to pay in the event of a claim) to be able to meet those claims and make a profit.
How do I work out my insurance coverage?
Each policy is unique and there is no standard rule for coverage in your policy, though your state may determine certain minimum levels of coverage for auto insurance. Because of this you will need to spend some time reviewing your insurance contract to understand your level of coverage, and if you feel it is insufficient you’ll want to talk to your broker/agent about increasing it.