Washington State Insurance Practice Exam

What are "liability limits" in an insurance policy?

1. The minimum amount paid for damages

2. The maximum amount the insurer will pay for liability claims

3. The agreed deductible for claims

4. The average payout for all claims

The correct answer is: The maximum amount the insurer will pay for liability claims

Liability limits in an insurance policy refer specifically to the maximum amount the insurer is obligated to pay for claims arising from liability. This includes situations where the insured is found legally responsible for causing injury to others or damage to their property. Understanding liability limits is crucial for policyholders, as these limits dictate the extent to which the insurance coverage will protect them financially. If a claim exceeds these limits, the policyholder may have to cover the additional costs out-of-pocket. Other options like the minimum amount paid for damages, the agreed deductible, and the average payout for all claims do not accurately represent the concept of liability limits, as they pertain to different aspects of insurance policies that are not directly related to the maximum payout for liability claims.