What is a policy limit?

A policy limit is a set amount of money that an insurance company agrees to pay out to a policyholder in the event of a covered claim. In Arizona, an insurance policy limit is typically set by the insurance company for any given insured risk. Depending on the type of claim, the policy limit may be the full amount of the claim or a percentage of the total. When a policyholder makes a claim and the cost of it exceeds the policy limit, the insured may face an out-of-pocket expense in order to cover the difference. For instance, if a policy limit is set at $100,000, and the claim is for $150,000, the insured may have to pay the remaining $50,000. It is important for policyholders to understand the policy limits of their insurance policies in order to be adequately covered in the event of an unforeseen incident.

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