What is a limit of liability?

A limit of liability refers to the maximum amount that an insurer will pay for a covered event or claim under a policy. This figure is established in the insurance contract and serves as a critical component in determining how much coverage a policyholder can expect to receive.

In practice, if a claim exceeds this limit, the insurer will not pay more than the specified amount, regardless of the actual losses incurred. This provides both the insurer and the insured with a clear understanding of the extent of coverage available. It's crucial for policyholders to be aware of this limit, as it can significantly impact their financial recovery in the event of a loss.

Understanding the limit of liability helps individuals make informed decisions regarding coverage levels and ensures they have adequate protection against potential risks while also understanding the constraints inherent in their policy.