What does the term 'sublimit' refer to in an insurance policy?

The term 'sublimit' in an insurance policy refers to a defined limit of coverage that applies to a specific type of risk, separate from the overall policy limit. This means that while a policy might have an overarching maximum coverage amount, certain types of losses or specific items may have their own, often lower, limits set within the policy. For instance, a homeowners insurance policy may provide a sublimit for personal property like jewelry, meaning that while the general limit for personal belongings may be substantial, claims for jewelry would be capped at a lower amount. By design, sublimits help insurers manage their risk exposure for particular categories of items or incidents without affecting the main limit of the policy. This is crucial for policyholders to understand because it defines their potential payout in the event of a loss in the specified category, which may differ from their overall coverage limits. Understanding sublimits is essential in helping clients adequately prepare for potential losses and ensure they have appropriate coverage tailored to their needs.