What is a potential consequence of having a policy with low coverage limits?

Having a policy with low coverage limits can lead to the policyholder facing higher out-of-pocket costs in the event of a claim. This occurs because if damages or losses exceed the policy’s coverage limits, the policyholder is responsible for covering the remainder of the costs beyond those limits. For example, if an accident causes $50,000 in damages and the policy only provides $25,000 in liability coverage, the policyholder must pay the additional $25,000 themselves. This financial responsibility can be significant, particularly in severe accidents or situations involving multiple parties or extensive property damage.

In contrast to the other options, higher premiums are generally associated with increased coverage limits rather than low ones. Automatic renewal of the policy is a matter of policy terms and does not depend on coverage limits. Moreover, having low coverage limits does not mean the vehicle is uninsured; it simply indicates that the coverage may be insufficient to cover all potential liabilities, not that there is no insurance at all.