Georgia Property & Casualty Practice Exam

What does the term “coverage limit” refer to in an insurance policy?

1. The maximum amount an insurer will pay for a covered loss.

2. The minimum amount of coverage required by law.

3. The deductible amount an insured must pay before coverage applies.

4. The total policy cost including all endorsements.

The correct answer is: The maximum amount an insurer will pay for a covered loss.

The term "coverage limit" in an insurance policy refers to the maximum amount that the insurer will pay for a covered loss. This is an important concept as it defines the extent of financial protection provided to the policyholder. For example, if a policy has a coverage limit of $100,000 for property damage, the insurer will not pay more than this amount for claims related to property damage under that particular policy. Understanding the coverage limit is crucial for both the insured and the insurer because it helps set expectations regarding the financial assistance available in the event of a claim. The other options, while related to insurance, describe different aspects. The minimum amount of coverage required by law relates to regulatory compliance but does not define the level of benefits a specific policy might provide. The deductible is the portion of a claim that the insured must pay out-of-pocket before the insurance coverage kicks in, and the total policy cost, including endorsements, refers to the financial expense of obtaining the coverage, which is separate from the maximum payout the policy offers.