What do liability limits represent in an insurance policy?

Liability limits in an insurance policy denote the maximum amounts that an insurer will pay for a claim. This is crucial for understanding how coverage functions since it sets a cap on the insurer’s financial responsibility in the event of a claim related to liability, such as bodily injury or property damage. If a policy includes liability limits of, say, $100,000 for bodily injury and $50,000 for property damage, the insurer will not pay more than these amounts for any single claim or series of claims arising from the same incident.

This concept is particularly important for policyholders, as it defines the extent of their protection. Knowing these limits helps individuals and businesses ensure they have adequate coverage to protect their assets in case of legal judgments or settlements against them. Understanding liability limits allows policyholders to evaluate whether they need to increase their coverage to mitigate potential financial risks in the case of high-cost claims.