What are limits of liability in an insurance policy?

Limits of liability in an insurance policy refer to the maximum amount that an insurer is obligated to pay for covered losses under that policy. This limit is specified in the terms of the insurance policy itself and can vary based on the type of coverage, the terms agreed upon with the policyholder, and the premiums that have been paid. Understanding these limits is crucial for policyholders, as they determine the extent of financial protection the insurance provides in the event of a claim. If a loss occurs that exceeds the limit of liability, the policyholder would be responsible for covering the difference.

The other options do not accurately capture the definition of limits of liability. While minimum coverage required by law relates to mandatory insurance requirements, it does not directly define liability limits. The percentage of loss that policyholders must cover refers to deductibles or co-payments, which are separate from the liability limits themselves. The total value of assets insured pertains to the overall value of the insurance policy but does not represent the specific monetary cap placed on individual losses.