YOU ASK:

What is the definition of Limits?

WE ANSWER:

Limits, in insurance parlance, refer to the largest amount that the insurance company will pay for the loss it agreed to cover. Limits state just how much the insurance company is obligated to pay. Deductibles may also apply before the insurance company will pay.

Limits are commonly stated in the policy and are linked with the delivery or purchase of services or goods. These may fall under terms and conditions.

For example, if Johnny bought a homeowners insurance policy with a collision limit of $100,000 with a $500 deductible. If Johnny's house is destroyed, and he discovers that he needs $200,000 to rebuild the house, the insurance company will pay for the $100,000 minus the deductible. It will not answer for the entire $200,000.

Limits may vary from coverage to coverage and may reset for each event or risk.

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