Insurance
What is Policy Limit?
Definition
The policy limit is the maximum dollar amount an insurer will pay on a covered claim. Limits are set per occurrence, per person or as an aggregate over the policy term, and losses above the limit are the policyholder's responsibility.
Real-World Example
A driver with a 100/300 auto liability policy has a $100,000 per-person and $300,000 per-accident limit. A jury awards $475,000 to an injured pedestrian; the insurer pays $100,000 and the driver's personal assets are exposed for the balance.
Why It Matters
State minimum liability limits are dangerously low in most jurisdictions. Umbrella coverage is often the cheapest way to raise total protection to $1M+.
Frequently Asked Questions
What if a claim exceeds my policy limit?
You are personally liable for the excess. Umbrella insurance is designed to layer over the primary policy limit.