Limitations

What Does Limitations Mean?

Limitations refer to the maximum amount an insurance company will pay for a claim during a policy period. These limits are usually specified in the insurance policy.

If losses exceed the policy’s limitations and the policyholder does not have additional coverage, they are responsible for covering the excess losses out of pocket. In practice, the right limit depends on the type of coverage. For auto policies, drivers often have to weigh how much liability insurance they actually need against their state’s minimums and the value of their personal assets.

Insuranceopedia Explains Limitations

Limitations are set because it is not feasible for insurance companies to cover an unlimited amount of losses for their policyholders. Instead, policies include specified limits designed to protect the insurer from overextending its financial resources.

Policyholders concerned about potential losses exceeding their policy’s limitations often purchase additional insurance to provide supplemental coverage. One common form of this is a commercial umbrella policy, which sits on top of a primary policy and pays out once the base limits are reached.