What is "liability limit" in insurance?

The term "liability limit" in insurance refers to the maximum amount an insurer will pay for a covered loss. This limit is crucial because it establishes a cap on the insurer's financial responsibility in the event of a claim. When a policyholder incurs a loss that is covered under their liability insurance, the insurer will only reimburse up to the predetermined liability limit specified in the policy. If the loss exceeds this limit, the policyholder would be responsible for covering any additional costs. This concept helps both the insurer and the policyholder understand the extent of coverage provided and ensure that adequate limits are set based on potential risks and exposures.

Understanding liability limits is important for individuals to ensure they have sufficient coverage to protect their assets and mitigate financial risks associated with liability claims.