What does "coverage limit" mean in insurance?

The term "coverage limit" in insurance refers to the maximum amount that an insurer will pay for a specific claim or for all claims within a certain policy period. This concept is fundamental in understanding insurance contracts, as it dictates the extent of financial protection available to the policyholder.

For example, if an individual has a health insurance policy with a coverage limit of $100,000, the insurer will only pay up to that amount for medical expenses during the policy term, regardless of the actual costs incurred. Any expenses beyond this limit would be the responsibility of the insured.

Understanding coverage limits helps consumers make informed decisions about their insurance needs, ensuring they select policies that provide adequate protection without unnecessary financial risks. It is crucial for assessing how much risk one is retaining and how much is transferred to the insurance company through the policy.