Legal Definitions - policy limits

Definition: Policy limits refer to the maximum amount of coverage that an insurance company will provide on a single claim under an insurance policy. It is also known as liability limit or limit of liability.

Example: Let's say you have an auto insurance policy with a liability limit of $50,000. If you get into an accident and the damages exceed $50,000, you will be responsible for paying the remaining amount out of pocket.

Explanation: This example illustrates how policy limits work in an insurance policy. The insurance company will only cover up to the maximum amount specified in the policy, and any additional costs will have to be paid by the policyholder.