What are liability limits in an insurance policy?

Liability limits in an insurance policy refer to the maximum amount an insurer is obligated to pay for a covered claim under the policy. This means that if an insured individual is found liable for damages resulting from an accident or incident, the liability limits outline the cap on the insurer’s financial responsibility for those damages. Once the limit is reached, any additional claims or expenses incurred will need to be covered by the insured out of pocket.

Understanding liability limits is crucial for policyholders because it helps them gauge the level of financial protection they have. If a claim exceeds the established liability limits, the insured could face significant out-of-pocket expenses, highlighting the importance of selecting adequate coverage based on potential risks.