Policy Limit
What Is a Policy Limit?
A policy limit is the maximum amount an insurance company will pay for a covered claim under an insurance policy. This limit represents the highest level of financial protection provided by the policy.
Policy limits may apply to individual claims, multiple claims, or the total coverage within a policy period.
Why It Matters
Policy limits determine how much financial protection a policyholder receives. If damages exceed the policy limit, the policyholder may be responsible for paying the remaining costs out of pocket.
Selecting appropriate policy limits is an important part of managing financial risk.
How Policy Limits Work
Insurance policies specify limits for different types of coverage.
Examples include:
- liability coverage limits in auto insurance
- property damage limits in homeowners insurance
- medical expense limits in health insurance
Higher policy limits usually increase insurance premiums because they provide greater protection.
Example
An auto insurance policy may include a liability policy limit of $100,000 per accident for bodily injury.
Policy Limit vs Deductible
- A policy limit is the maximum amount an insurer will pay.
- A deductible is the amount the policyholder must pay before insurance coverage begins.
FAQs About Policy Limits
Can policyholders increase policy limits?
Yes. Many insurers allow policyholders to purchase higher limits.
Do different coverages have separate limits?
Yes. Policies often include multiple limits for different risks.
What happens if a claim exceeds the policy limit?
The policyholder may be responsible for paying the remaining costs.
Related Terms
