Liability is very likely the most important type of car insurance to have, and to have in the right amount. Liability insurance covers another driver’s bodily injury, including medical bills, lost wages and pain and suffering, for which you are responsible—or, to use a technical term “legally liable.” It also covers property damage, whether to the vehicle or to other personal property. The mere fact that you were involved in an accident in which the other driver suffered an injury or damage to his vehicle does not mean that you are liable for those losses. You are only responsible for the losses that are determined to be the result of your negligence. Your liability insurance would pay for any legal judgments against you, but only up to the limit of your policy. If the limit of your liability insurance were less than the claim against you, you may be held personally responsible for any judgment in excess of your policy limits. This is why having an adequate policy limit is paramount for your financial security.
There are two principal types of liability insurance: single limit and split limit. In a single limit policy, the insurance company promises to pay up to a specified lump sum of money for all liability that result from a single accident. Simple enough. A split limit policy, on the other hand, is a bit more complicated. There’s not one limit, but three: one for all the bodily injuries you cause to a single person, another for all the injuries you cause in a single accident involving more than one person, and a third for all property damage you cause in a single accident.
Split limit policies are common in New Jersey. For example, you might see your policy provides for 25/50 coverage. This means that the maximum liability coverage for one person injured in an accident is $25,000, and the most your insurance company would pay for all injuries, regardless of how many people were involved, is $50,000.
You were involved in an accident through no fault of your own, and the other driver had a 25/50 split-limit policy. This means that the insurance coverage, regardless of the nature and extent of your injuries, would be $25,000.
On the other hand, let’s say…
You were driving with three other people in the car when the same driver hit you. The most any of your passengers could recover would be $25,000, and the total the insurance company would pay for all injuries from your car’s occupants would to up to $50,000. If one person’s accidents were particularly severe, he or she may recover $25,000, leaving another $25,000 to be divided among the other injured passengers. However, in many states you are indeed able to "stack" this coverage. This question should be reviewed with your attorney