Illinois Casualty Insurance State Practice Exam

What is the maximum amount of money an insurance company will pay for a covered incident referred to as?

1. Supplemental Payments

2. Limits of Liability

3. Coverage Limits

4. Claim Amount

The correct answer is: Limits of Liability

The term that describes the maximum amount of money an insurance company will pay for a covered incident is known as "Limits of Liability." This phrase refers specifically to the boundaries set by the insurance policy concerning how much the insurer will cover in the event of a claim. These limits can vary widely based on the type of insurance and the specifics of the coverage obtained by the policyholder. Understanding limits of liability is crucial for policyholders, as it outlines the extent of their protection. For instance, if a policy has a liability limit of $100,000, that is the maximum amount the insurance company will pay toward a covered claim, regardless of the actual expenses incurred above that amount. Knowing these limits helps policyholders make informed decisions about their coverage needs and any potential risks they may face. The other terms, while related to insurance, do not specifically define the maximum payout for a claim in the same precise manner. "Supplemental Payments" refer to additional amounts an insurer may cover beyond the limits of liability under certain circumstances. "Coverage Limits" often serves as a general term that may overlap with limits of liability but isn't as specific. "Claim Amount" indicates the specific amount a policyholder seeks from their insurer but doesn’t inherently define the maximum limit set by