Insurance claims can be a hassle. The goal for your insurer is to avoid paying out, but if they cannot do that, they will try to avoid paying as much as possible.
On the other hand, you want to get the maximum due to you. For this reason, it is very important to know your policy limits. Your insurer does not have to pay you more than your limit, which could leave you without enough coverage for your actual costs.
Policy limits
Your declaration page should outline the limits of your policy. Depending on the type of insurance, it may tell you coverage for individual claims, such as how much medical it will pay out. It may also tell you a limit per claim. For example, your insurer may pay out $30,000 per incident for which you make a claim.
Meaning
The policy limit is the amount of insurance you have. The insurer will not pay more than that amount because you only bought coverage up to that limit. Once your insurer pays out the money up to your limit, you cannot expect additional payments.
Importance
The importance of your policy limits is that they represent the most money you can get for your claim. If the insurer pays that amount, you have exhausted your insurance. You cannot make a bad faith claim against an insurer who refuses to pay because you reached your policy limits.
Knowing your policy limits will be incredibly important as you make claims. If your insurer refuses to pay and you have not reached your limits, you may need to file an appeal. If you can gather evidence of wrongdoing, you may be able to consider a bad-faith claim.
