In insurance, what does the term "policy limits" refer to?

The term "policy limits" specifically refers to the maximum amount an insurer is obligated to pay for covered losses under an insurance policy. This limit is established in the policy document and represents the insurer's maximum liability in the event of a claim. For example, if a homeowner has a policy with a limit of $300,000 for property damage, this means that the insurer would pay out a maximum of $300,000 for any single covered event, regardless of the total value of the damages incurred. Understanding policy limits is crucial for policyholders to ensure they have adequate coverage for their potential risks, as going beyond these limits may result in out-of-pocket expenses for any amount exceeding the limit.