What is the term for the maximum amount an insurer will pay for a covered loss?

The term that refers to the maximum amount an insurer will pay for a covered loss is known as the policy limit. This concept is fundamental in insurance contracts, as it defines the extent of financial liability that the insurer assumes for specific risks outlined in the policy.

Policy limits can vary significantly depending on the type of insurance and the coverage options chosen by the policyholder. They are critical for both insurers and insured individuals because they clarify the financial expectations and responsibilities in the event of a loss. For example, if a health insurance plan has a policy limit of $100,000, this means that the insurer will not pay more than this amount for covered medical expenses, regardless of the actual costs incurred.

Understanding policy limits helps policyholders make informed decisions about their coverage needs and ensures they are adequately protected without exceeding those limits during the claims process.