A standard limit is the maximum amount of coverage that a policyholder insured by a standard policy can get reimbursed in a policy period. The policyholder will be responsible for any amount that is greater than the amount covered by the standard limit.
Insurers have standard limits so that they know the exact amount of risk that they are liable for. This is important for calculating their profitability. An insurance purchaser can often get coverage beyond the standard limit but they will typically have to buy a non-standard policy. A policy with more coverage generally has higher premiums, so higher limits come at a price.
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