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📏 '''Limit of indemnity''' is the maximum amount an [[Definition:Insurance carrier | insurer]] will pay under a policy for a covered loss or series of losses. It represents the ceiling of the insurer's financial obligation and is a fundamental parameter in virtually every [[Definition:Insurance policy | insurance contract]], whether the coverage applies to [[Definition:Property insurance | property]], [[Definition:Liability insurance | liability]], [[Definition:Professional indemnity insurance | professional indemnity]], or other [[Definition:Lines of business | lines of business]]. The term is used interchangeably in many markets with "[[Definition:Policy limit | policy limit]]," though "limit of indemnity" is particularly prevalent in the [[Definition:London market | London market]], across Continental Europe, and in many Asia-Pacific jurisdictions.

⚙️ Limits can be structured in several ways depending on the policy form and the class of risk. A common configuration distinguishes between an [[Definition:Aggregate limit | aggregate limit]] — the total payout available over the policy period — and a per-occurrence or per-claim limit, which caps the amount payable for any single event. In [[Definition:Liability insurance | liability]] placements, sublimits may further restrict coverage for specific perils or cost categories, such as defense costs or pollution-related claims. During the [[Definition:Underwriting | underwriting]] process, the selection of an appropriate limit involves balancing the [[Definition:Insured | insured's]] exposure analysis, the [[Definition:Premium | premium]] cost, and the insurer's appetite for risk accumulation. [[Definition:Reinsurance | Reinsurance]] arrangements — particularly [[Definition:Excess of loss reinsurance | excess of loss]] treaties — are often structured by reference to the original limit of indemnity, and [[Definition:Catastrophe modeling | catastrophe models]] use policy-level limits as key inputs for portfolio [[Definition:Loss aggregation | aggregation]] and [[Definition:Probable maximum loss (PML) | probable maximum loss]] estimation.

💡 Getting the limit of indemnity right is one of the most consequential decisions in any insurance transaction. An inadequate limit leaves the policyholder exposed to potentially catastrophic out-of-pocket costs — a situation known as [[Definition:Underinsurance | underinsurance]] — while an excessively high limit inflates premium expense and may distort the insurer's capacity allocation. Regulatory frameworks across jurisdictions often prescribe minimum limits for certain compulsory coverages: motor third-party liability minimums vary from country to country, professional indemnity requirements differ by profession and jurisdiction, and employers' liability mandates set floors in markets like the United Kingdom. For [[Definition:Broker | brokers]] advising clients and underwriters pricing risk, the limit of indemnity is the single figure around which much of the negotiation and risk transfer economics revolve.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Policy limit]]
* [[Definition:Aggregate limit]]
* [[Definition:Deductible]]
* [[Definition:Underinsurance]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Sublimit]]
{{Div col end}}

Definition:Limit of indemnity - Revision history

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