Policy Limit
IntermediateA policy limit is the maximum amount an insurer will pay under an insurance policy for a covered loss, either per claim, per event or over the policy's term.
Every insurance policy sets limits on how much the insurer will pay. If a loss exceeds the limit, the policyholder is responsible for the difference.
Limits can be structured in several ways. A per-occurrence limit caps the payout for any single event. An aggregate limit caps the total payout over the policy period, usually a year. Some policies also have sub-limits, which cap payouts for specific types of loss, such as jewellery in a home insurance policy or a particular medical treatment.
For example, a business liability policy might have a limit of 1 million per occurrence and 2 million in aggregate. If the business is sued and ordered to pay 1.5 million for a single incident, the insurer pays 1 million and the business must pay the remaining 500,000.
Choosing appropriate limits is important. Limits that are too low leave people exposed to large uninsured losses, while higher limits cost more in premiums. For high-value risks, people and businesses sometimes buy additional excess or umbrella policies that provide cover above the limits of their primary insurance.
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