What are "liability limits" in an auto insurance policy?

Liability limits in an auto insurance policy refer to the maximum amount that the insurance company will pay for damages or injuries that the policyholder is found responsible for in an accident. This means that if an accident occurs and the policyholder is liable, the insurance will cover costs up to these specified limits, including property damage and bodily injury to others involved in the accident.

Understanding liability limits is crucial because they dictate the financial protection provided by the insurance policy. If the damage or medical costs exceed these limits, the policyholder may be held responsible for the remaining amount, which can lead to substantial out-of-pocket expenses. Thus, choosing appropriate liability limits is essential for ensuring adequate coverage and financial security in the event of an accident.

Other options refer to aspects of auto insurance but do not accurately describe liability limits. Minimum coverage refers to legally mandated amounts, deductibles are the amounts the insured pays before insurance kicks in, and premium rates are the costs paid for the insurance policy itself.