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What Is the 25/50/25 Rule In Insurance?

What Is the 25/50/25 Rule In Insurance?

You often hear about certain ‘rules of thumb’ for a wide variety of subject matters, especially those that deal with personal finances and/or living situations. For example, many of us have heard the 2:1 ratio when deciding on a safe price for the purchase of a car or home. If you’re not aware of this formula, it’s simple; if you make $100,000, then you should be able to afford a $200,000 home. In turn, if you make $50,000, you should be able to finance a car loan for $25,000.

When it comes to auto insurance, you may have heard about the 25/50/25 rule when discussing coverage options with your agent. Let’s take a closer look at what these numbers mean both as a whole and separately.

As a whole, it’s an abbreviated way to express liability amounts in car insurance. If you plan on purchasing auto insurance in the near future, which we all tend to have to do at one point or another, it’s important to understand how to read liability coverage amounts. It’s also important to know that these are the minimum amounts of coverage allowed by the state. If for some reason you do not have these minimum amounts of coverage, you run the risk of receiving a citation, fine or even having your vehicle impounded. Those who are found multiple times to have below-minimum coverage amounts can even have their license suspended. 

As separate parts, the first number (25) is the limit that your carrier will pay for bodily injury to one person per accident. This means that if you hurt somebody with your vehicle, your insurance will pay that person $25,000 for their medical bills. 

The second number (50) is the limit that your carrier will pay for all people injured in an accident. This number can be a little tricky to understand— let’s say you run a red light and smash into a sedan full of people. If you injure only two people, they both will receive $25,000 (with 25/50/25 limits). However, if you injure three people, they must split the maximum limit of $50,000 (meaning each person will receive $16,666.66). 

A sample auto insurance policy.

The third number denotes the limit of liability on property. This means that if you damage somebody’s property, your carrier will pay up to $25,000. As you can see, these limits are very low and in many cases, these amounts are not enough to cover the cost of an accident. This would make you liable for the difference in cost, and is why we highly recommend limits in excess of 100/300/100. Oftentimes, we will additionally recommend a personal umbrella policy that will protect you in case you are sued. 

If you are concerned about your coverage options, visit our website or give us a call today at 860-684-5270. Our licensed insurance agents will gladly walk you through your coverage options and ensure that you have the right coverage for your individual needs. That’s our promise to you.

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