In property insurance, what does 'limit of liability' refer to?

'Limit of liability' in property insurance refers to the maximum amount an insurer will pay for a covered loss. This limit establishes the insurer's financial responsibility in the event of a claim and determines the highest payout the insured can receive under the policy for damages due to covered risks, such as theft, fire, or other perils specified in the insurance agreement.

It's essential for policyholders to understand the limit of liability when purchasing insurance coverage, as it directly impacts their financial protection. If damages exceed the stated limit, the insured would be responsible for paying the difference out of pocket. This principle helps manage the risk the insurer assumes and ensures that policyholders choose appropriate coverage amounts based on the value of their property and potential risks.