Final answer:
The second number in split limit coverage represents property damage coverage per accident, indicating the limit on the amount paid for property damage in an incident.
Step-by-step explanation:
In split limit coverage, the second number represents property damage coverage per accident. This means that there is a specified limit on the amount the insurance policy will pay for property damage per accident. For example, if an auto insurance policy is described as 25/50/15, the second number (50) indicates the maximum amount in thousands that the insurance company will pay for damage to others' property in an accident.
Understanding auto insurance and its split limit coverage is crucial for managing financial risks associated with driving. In our simplified example involving 100 drivers, the total damages from car accidents amounted to $186,000, where individual claims ranged from minor dings at $100 to large accidents costing $15,000. Insurance companies calculate premiums to cover the costs of claims, administrative costs, and to ensure profitability. Hence, they develop various methods to share the cost with policyholders, such as deductibles and coinsurance, to reduce moral hazard and maintain financial balance.