What is meant by "coverage limit" in the context of a Personal Auto Policy?

In the context of a Personal Auto Policy, "coverage limit" refers to the maximum payout amount established by the insurance policy for specific covered losses. This means that when a policyholder files a claim, the insurer will only pay up to that predetermined amount for covered incidents such as bodily injury liability, property damage, or comprehensive and collision coverage. For instance, if a policy has a coverage limit of $100,000 for bodily injury liability and the policyholder faces a claim that exceeds this amount, the insurer will pay only up to the coverage limit, leaving the policyholder responsible for any additional costs beyond that limit.

Understanding coverage limits is crucial because it helps policyholders determine the extent of their financial protection. If a policy has low limits and a costly accident occurs, the insured may face significant out-of-pocket expenses. Hence, choosing appropriate coverage limits is an important aspect of managing risk and ensuring adequate protection under a Personal Auto Policy.