Which of the following best describes the term 'Limits of Liability'?

• A. The maximum amount the insurer will pay for a loss
• B. The premium
• C. The deductible
• D. The policy term

Answer: (A)

Limits of liability describe the maximum amount the insurer will pay for a loss under the policy. This cap sets the ceiling on coverage and can apply per incident (per occurrence) or as an aggregate total across the policy period. If a claim exceeds the limit, the excess is the insured’s responsibility, subject to the policy terms. The premium is the price paid for the policy, the deductible is the amount the insured must pay before the insurer contributes, and the policy term is how long the coverage lasts. So the key takeaway is that limits of liability cap the insurer’s payment for a loss.