Property & Casualty Insurance Exam (National Portion)Casualty InsuranceHard
A client has a Personal Auto Policy (PAP) with liability limits of $25,000 per person / $50,000 per accident for bodily injury and $10,000 for property damage. The client causes an accident injuring two people. Person 1 sustains $30,000 in bodily injuries, and Person 2 sustains $15,000 in bodily injuries. What is the maximum total amount the policy will pay for bodily injury for this accident?
- A$50,000
- B$45,000
- C$40,000
- D$25,000
Show answer & explanationAnswer & explanation
Correct answer: C. $40,000
The policy has a per-person limit of $25,000 and a per-accident limit of $50,000. For Person 1, who has $30,000 in injuries, the policy will pay the per-person limit of $25,000. For Person 2, who has $15,000 in injuries, the policy will pay the full $15,000. The total payment for bodily injury is $25,000 (for Person 1) + $15,000 (for Person 2) = $40,000. This total is within the per-accident limit of $50,000.
Why the other options are wrong
- A. This is the per-accident limit, but the actual sum of covered injuries is less than this limit.
- B. This incorrectly sums the full injury amounts for both individuals, disregarding the per-person limit for Person 1.
- D. This is only the per-person limit, not the total for the accident.
Split Limits Application - Bodily Injury (Advanced)
Split limits for bodily injury liability apply a maximum payment per individual injured and a separate maximum for all bodily injuries combined in a single accident. Both limits must be considered when determining the total payout.
- Per-person limit caps individual payouts.
- Per-accident limit caps the total payout for all individuals combined.
- The per-person limit is applied first to each individual's damages.
- The sum of individual payouts is then compared to the per-accident limit.
Memory trick: Think 'individual cap' first, then 'total event cap'.