Final answer:
The second term in a split liability coverage limit indicates the total coverage available for injuries to all people in a single accident. Premiums are set based on risk groups, and cost-sharing measures discourage overuse of insurance benefits.
Step-by-step explanation:
If a split limit is used, such as $100,000/$300,000/$100,000, then the second term in the limit expresses the maximum dollar amount that the insurance company will pay for all injuries sustained by all people in a single accident. In contrast, the first term indicates the maximum coverage for injuries to one person in an accident, and the third term represents the maximum payment for property damage per accident.
Insurance companies assign premiums based on risk groups, charging lower premiums to lower-risk individuals, which can prevent those with low damages from subsidizing those with higher damages. Cost-sharing mechanisms like deductibles, copayments, and coinsurance are also implemented to reduce moral hazard, ensuring that policyholders share a portion of the costs to prevent overuse of insurance coverage.