The policy limit of an insurance plan refers to the maximum amount the insurer will pay out for specific claims. It is often listed on the policy document’s declaration page, which outlines the key details of the insurance contract.
There are several types of policy limits. These include:
Per-occurrence limit: The maximum amount the insurance company will pay for a single event or claim.
Per-person limit: The maximum amount the insurance provider will pay for a single person’s claims.
Combined limit: A single limit that applies to several coverage types.
Aggregate limit: The total amount that can be paid out for all claims during a set period.
Split limit: A combination of per-occurrence, per-person, and aggregate limits.
Special limits: The maximum amount an insurer will cover for special items under an insurance policy, including expensive jewelry, artwork, or collectibles under homeowners’ insurance, or classic or vintage cars under an auto insurance policy.
In some policies, policyholders are allowed to choose a limit. Others follow the requirements imposed by the government or an industry body. These include uninsured or underinsured motorist coverage in several states in the US.
Higher maximums also result in more expensive premiums. If a claim exceeds the policy limit, the insured may have to cover the additional expenses on their own.