What are policy limits?
What a great question and so few people ever think to ask! A policy limit is the maximum amount of money an insurer will pay out to an insurance policyholder after an insured loss. Policy limits are defined based on what is insured and the kind of kind of policy you hold.
Policy Limits of Amounts in the Case of a Claim
When insuring your property like your home car and other valuables consider what level of coverage you need and are willing to pay for. Make sure all of your items are adequately covered because your level of coverage will affect the policy limit and the amount you receive if you need to report an insurance claim.
The Insurance Information Institute breaks down coverage for property items intothree categories each describing what payout can be expected from a claim.
Policy Limits of Liability
Let’s take a quick moment to look at liability insurance policy limits. There are different issues to consider here since the policy limit will not apply to your payout (at least not directly). Rather in the case of your liability insurance the policy limit refers to the maximum amount the insurer will pay out to a third party who has a claim against you.
Let’s use a car accident as an example. Say you rear-end someone during some bad driving conditions. You’re okay but the passenger in the other car has whiplash. They or their insurance company comes after you to make up for medical bills or time off of work. Your insurer steps in and will cover the associated costs such as legal fees and medical or accident benefits. However this is only to acertain amountwhich will vary depending on your policy. Beyond that amount you would be on the hook for anything additional a court may award.
Your policy limits are a crucial part to your insurance policy. It’s important that you know your limits and understand how they work.Talking to a brokercan help as they can help explain the limits to your personal policies and advise if those limits are right for your situation.