What is the term for the dollar limit set by an insurance policy for liability claims?

The term for the dollar limit set by an insurance policy for liability claims is known as the policy limit. This limit defines the maximum amount an insurer will pay for a covered loss under the terms of the policy. In liability insurance, this limit applies to claims made by third parties who have suffered loss or damage due to the insured's actions. For example, if a liability policy has a policy limit of $300,000, the insurer would cover up to that amount in the event of a valid claim.

Understanding this concept is crucial because it helps policyholders recognize the extent of their coverage and the potential financial exposure they could face if a claim exceeds this limit. This distinction is important in assessing risk, understanding coverage options, and ensuring adequate insurance protection.

Other options, such as coverage limit, retention limit, and deductible, refer to different aspects of insurance policies. The coverage limit typically refers more broadly to the maximum amount of coverage available under a specific coverage type, while the retention limit is often associated with self-insured retention or the amount a policyholder must pay before insurance kicks in, and the deductible refers to the amount a policyholder is responsible for before the insurance coverage begins.