What are coverage limits in insurance?

Coverage limits in insurance refer to the maximum payout an insurer will provide for a covered loss under a policy. This is a critical aspect of any insurance policy because it defines the insurer's liability and sets boundaries on the financial protection offered. Knowing the coverage limits helps policyholders understand how much they can expect to receive in the event of a claim. For example, if a homeowner has a policy with a coverage limit of $300,000 for property damage, this means the insurer will cover costs related to damage up to that amount, and the policyholder would be responsible for any costs above that limit. This concept is essential for effective risk management and ensuring that individuals have appropriate coverage for their needs.