What does "Policy Limits" refer to in insurance?

"Policy Limits" specifically refers to the maximum claim amount an insured can receive from their insurance policy for a covered loss. These limits are established in the policy documents and represent the insurer's financial liability in the event of a claim. If a loss occurs and the costs exceed these limits, the insured will be responsible for covering any expenses that surpass the policy limit.

Understanding policy limits is crucial for ensuring that coverage is sufficient for the value of the insured assets or potential liabilities, as well as for making informed decisions about purchasing additional coverage or endorsements if necessary. The other choices do not accurately capture the essence of what "policy limits" signify in the context of insurance.