What is a "policy limit"?

A "policy limit" refers to the maximum amount an insurer will pay for a claim under a specific coverage. This means that if you have an accident or a loss that is covered by your insurance policy, the insurer will only compensate you up to this predetermined limit. Understanding policy limits is crucial because it helps policyholders recognize the financial protection their insurance provides and the potential costs they may need to cover themselves if a claim exceeds these limits.

For instance, if you have a policy limit of $100,000 for liability coverage and you are involved in an accident that results in damages costing $150,000, your insurer will only pay the $100,000 limit, leaving you responsible for the remaining $50,000. Therefore, being aware of the policy limits can guide you in choosing adequate coverage that aligns with your needs and risks.