Alberta General Insurance Level 1 Practice Exam

Limits of liability in an insurance policy refer to the maximum amount the insurer is obligated to pay for a claim. This concept is crucial because it defines the financial boundaries of the policy. For instance, if a policy has a limit of $100,000 for property damage, the insurer will cover up to that amount in the event of a claim, but no more. Understanding these limits is essential for policyholders to know how much protection they have in various scenarios.

The other choices do not accurately describe limits of liability. The minimum amount the insurer is willing to pay does not accurately capture the essence of liability limits, as it focuses on a lower threshold rather than a maximum. The overall value of the policyholder's assets relates to their total net worth or property, which has no direct impact on the limits set forth in the policy. Lastly, the total number of claims allowed in a policy year describes a different aspect of insurance policies—specifically related to the frequency of claims rather than the limit of coverage for each individual claim.