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💲 '''Policy limits''' represent the maximum amount an [[Definition:Insurance carrier | insurance carrier]] will pay under an [[Definition:Insurance policy | insurance policy]] for covered losses during the [[Definition:Policy period | policy period]]. These limits are stated on the [[Definition:Declarations page | declarations page]] and form one of the most fundamental parameters of any insurance contract, directly shaping the [[Definition:Premium | premium]] charged, the [[Definition:Risk | risk]] retained by the [[Definition:Policyholder | policyholder]], and the exposure assumed by the insurer. Limits may be expressed on a per-occurrence basis, an [[Definition:Aggregate limit | aggregate]] basis, or both, depending on the [[Definition:Line of business | line of business]] and [[Definition:Policy form | policy form]].

⚙️ In a standard [[Definition:Commercial general liability insurance (CGL) | commercial general liability]] policy, for example, the declarations page will typically show a per-occurrence limit (the most the insurer pays for any single covered event), a general aggregate limit (the total payout cap across all occurrences in the policy period), and potentially separate [[Definition:Sub-limit | sub-limits]] for specific coverages like [[Definition:Products-completed operations | products-completed operations]] or [[Definition:Personal and advertising injury | personal and advertising injury]]. [[Definition:Property insurance | Property]] policies, by contrast, often express limits as the value of the insured asset — the building limit, the contents limit, and so on. When a loss exceeds the policy limits, the policyholder bears the excess amount, which is why businesses with significant exposures often purchase [[Definition:Umbrella insurance | umbrella]] or [[Definition:Excess insurance | excess]] layers that sit above the primary policy's limits. The selection of adequate limits is a core function of [[Definition:Insurance broker | broker]] advisory work and [[Definition:Risk management | risk management]] strategy.

📈 Choosing the right policy limits is a balancing act between adequate protection and affordable [[Definition:Premium | premium]]. Higher limits cost more but shield the insured from catastrophic out-of-pocket losses; lower limits reduce premium outlay but leave greater [[Definition:Retained risk | retained risk]]. [[Definition:Underwriter | Underwriters]] evaluate the appropriateness of requested limits relative to the insured's exposure profile — a manufacturer with global distribution likely needs higher [[Definition:Product liability insurance | product liability]] limits than a local retailer. From the carrier's perspective, the limits selected across its book of business directly influence [[Definition:Probable maximum loss (PML) | probable maximum loss]] calculations and [[Definition:Reinsurance | reinsurance]] purchasing decisions. Regulatory minimums also apply in certain lines — [[Definition:Auto insurance | auto insurance]] and [[Definition:Workers' compensation insurance | workers' compensation]], for instance, impose statutory minimum limits in most U.S. states.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Aggregate limit]]
* [[Definition:Per-occurrence limit]]
* [[Definition:Sub-limit]]
* [[Definition:Excess insurance]]
* [[Definition:Umbrella insurance]]
* [[Definition:Deductible]]
{{Div col end}}

Definition:Policy limits - Revision history

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