If you’re in the market for auto, homeowners or life insurance, you may wonder how much coverage you really need. If you already have these policies in place, you may question whether you’re paying for enough coverage to protect you and your loved ones from the unexpected.
Insurance is personal, and no two policies are the same. Whether to take a higher policy limit is a discussion to have with an insurance professional, which is why we reached out to our own AAA insurance agents to break it down.
What Is an Insurance Policy Limit?
An insurance policy limit is the maximum amount an insurance company will pay for a covered claim. The higher the policy limit, the higher the payout ceiling.
What Does a Higher Insurance Policy Limit Entail?
A higher policy limit generally results in an increased premium, so you will be paying more monthly or annually. In the case of life insurance, there are some caveats.
“A higher policy limit could mean more thorough medical exams and possibly justifying the need for a larger policy limit and a greater payout to your loved ones,” said Tanzania Steele, field life insurance agent with AAA.
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“Absolutely, yes,” Steele said. “It is worth spending additional finances for an opportunity to be sure that you, your loved ones and the things that you have worked for are protected and secure. No amount of money is worth your security.”
Of course, everyone’s reasoning for getting insurance is unique to their situation, but the bigger your policy limit, the more protection you are giving yourself and your loved ones.
“Having adequate protection for your loved ones to handle expenses and standard of living in your absence, replacing lost income, covering major debts (mortgage payments, estate planning/inheritance) and peace of mind are all benefits to a higher policy limit,” Steele said.
In the case of homeowners or auto insurance, if you’re found legally responsible for an accident or loss that exceeds your coverage, increasing your policy limits reduces the risk of personal financial responsibility. It also means less worry about worst-case scenarios, like serious injuries, major damage to someone else’s property or catastrophic loss to your home. If something big happens, you don’t want to wonder if your policy will cover it.
How Do I Know if Taking a Higher Limit Is Right for Me?
It’s important to review your policy with a licensed agent to make sure you have coverage that meets your long-term needs. A thorough assessment should be made of your income, debts, assets and the needs of your loved ones.
In general, it’s a good rule of thumb to not exceed your means.
“When choosing the right plan, the premium must be paid comfortably,” advised Peter Velez, senior life insurance specialist with AAA.
For life insurance, the suggested policy limit can be up to 10 times your annual salary. People who are breadwinners of the family or own a business would benefit from a higher policy limit. However, those who are looking only for the basics may not need a higher limit.
Higher limits are especially worth it if you have significant assets like home equity, retirement accounts, investments or savings and business interests. If losing any of these would be devastating, higher policy limits make sense.
When is the best time to make changes to my policy?
The ideal time to make changes to your policy is at your annual review with your insurance agent or after a significant life event occurs — marriage, divorce, birth of child, purchase of a home and so on.
AAA has you covered for insurance. Get a quote today.
Based in Rhode Island, Sarah has been a copywriter and content producer with AAA Northeast since 2021. When she’s not scouring the best spots for all things food and drink or whipping up her own versions of tasty meals, you can often find her in the garden, planning her next trip or sipping on (another) hot coffee.
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