In the context of a PAP, what does "limits of liability" refer to?

"Limits of liability" in a Personal Auto Policy (PAP) refers to the maximum amount the insurance company will pay for covered losses in the event of an accident or damage. This encompasses bodily injury and property damage liability, which are critical components of auto insurance. These limits are established when the policy is issued and can vary based on the coverage options selected by the policyholder.

For example, if a policy has a liability limit of $100,000 for bodily injury per person and $300,000 for total bodily injury per accident, this means that the insurance will cover up to $100,000 for each injured party, with a maximum of $300,000 for all injuries in a single accident.

Understanding these limits is essential for policyholders as it determines their financial protection in the event of an accident, helping them assess the adequacy of their coverage relative to their potential liabilities. This concept of liability limits is foundational to insurance policies, ensuring individuals are aware of their protection boundaries in various circumstances.