The maximum amount an insurance company will pay for a covered loss under a policy. Policy limits can apply per occurrence, per claim, or as an aggregate over the policy period. For example, an auto insurance policy might have a $2 million third-party liability limit, meaning the insurer will pay up to that amount for damages you cause to others.
Understanding policy limit is important for Canadian insurance consumers because it directly affects how your coverage works and what you can expect when you need to use your insurance. This is a foundational insurance concept that applies across multiple types of coverage and is worth understanding regardless of what insurance you carry.
If you have questions about how policy limit applies to your specific insurance needs, speaking with a licensed insurance broker can help clarify your options and ensure you have the right level of protection.
The amount of money a policyholder must pay out of pocket before the insurance company begins to pay on a claim. Higher deductibles generally result in lower premiums. For example, if you have a $1,000 deductible and file a $5,000 claim, you pay the first $1,000 and the insurer covers the remaining $4,000.
A provision in property insurance that requires the policyholder to insure their property to a certain percentage of its value, typically 80%. If the property is underinsured, the policyholder becomes a co-insurer and must absorb a proportional share of the loss. For example, if you insure your home for only 60% of its value with an 80% co-insurance clause, you would only receive 75% of any claim.
An extra liability insurance policy that provides coverage beyond the limits of your existing auto, home, or business insurance. Umbrella policies typically offer $1 million to $5 million in additional protection and are relatively inexpensive for the amount of coverage they provide. They activate when the limits of your underlying policies are exhausted.
A licensed insurance broker can explain how policy limit applies to your specific situation and help you find the right coverage.
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