What is a Blanket Limit?
A blanket limit is the most money an insurance company will pay out in a specific place. Insurance companies set blanket limits. They do it when they sell insurance policies. Blanket limits are important. They keep insurance companies from losing too much money. Insurance companies don’t want to go broke!
Blanket limits change how much insurance people can buy. When blanket limits are low, people can’t buy as much insurance. When blanket limits are high, people can buy more insurance. Insurance companies are careful about blanket limits. They want to sell the right amount of insurance. Not too much. And not too little.
Why Do Insurance Companies Use Blanket Limits?
Insurance companies use blanket limits for a few reasons:
- To not sell too much insurance in one place
- To make enough money to pay insurance claims
- To stay in business for a long time
Insurance is a tricky business. Insurance companies have to guess how much money they will pay out. They never know for sure. Big disasters can cost a lot of money. Like earthquakes, floods, and hurricanes. Or lots of people getting sick or hurt at once. Insurance companies use blanket limits to be careful. They don’t want one disaster to make them go broke.
What Kinds of Insurance Have Blanket Limits?
Lots of insurance policies have blanket limits. Here are some of them:
- Health insurance
- Car insurance
- Home insurance
- Life insurance
- Business insurance
All these types of insurance can have blanket limits. It depends on the insurance company. And where you live. Insurance laws are different in each state. Some states tell insurance companies how much insurance to sell. Other states let insurance companies decide.
How Do Blanket Limits Work?
Think about car insurance. Let’s say an insurance company sells car insurance. They might set a blanket limit for a certain city. The limit could be $10 million. That means the insurance company won’t sell more than $10 million of car insurance in that city.
Insurance companies have to be careful. They don’t want to sell $10 million of insurance if they think they’ll have to pay out $20 million. They would lose a lot of money!
Here’s how an insurance company decides on a blanket limit:
- Look at how many people live in the city
- Guess how many car accidents will happen
- Figure out how much those accidents could cost
- Set the blanket limit so they can pay for accidents
- But not sell too much insurance either
Insurance companies do a lot of math. They hire really smart people to help them. Actuaries are one type of smart insurance people. Their job is to calculate risk. They look at a lot of info. Like traffic data, crime rates, and weather patterns. All that helps them pick the right blanket limits.
What if a Blanket Limit is Too Low?
Sometimes blanket limits cause problems. Like if an insurance company sets the limit too low. Then people in that area can’t buy enough insurance.
Car insurance is important. Most states make you buy it. What if you live somewhere with a low blanket limit? You might not be able to get car insurance. Even if you’re a safe driver. That’s not really fair.
Insurance companies sometimes raise blanket limits. Especially if a lot of people complain. Or if the government makes them do it. But they are always careful. They don’t want to sell too much insurance either.
Can You Get Insurance Above a Blanket Limit?
Sometimes you can get insurance above a blanket limit. But it’s not always easy. You usually have to prove that you really need it. Like if you have a super expensive car. Or if you have a dangerous job.
You might need to pay a lot for insurance above the limit. Because you’re a bigger risk for the insurance company. They might lose a lot of money on you.
Insurance brokers can help you get insurance above a limit. They work with a lot of insurance companies. So they know which ones might sell you more insurance. You have to pay brokers though. So getting insurance above a limit costs even more.
Some insurance companies specialize in high-risk insurance. Like for race car drivers or stunt people. Those companies charge a lot. But they will sell you more insurance than most companies.
