Purpose

• The purpose of insurance policy limits is to create a definitive contractual obligation between an insurance underwriter and the insured. The insured advises the insurance company how much insurance coverage he or she requires and the underwriter determines the corresponding deductible and premium that the insured must pay.
  
  

Common Policies with Limits

• Common insurance policies that operate on the principal of specified limits in exchange for periodic premium payments include car, homeowner's, flood, life, general business liability and professional liability insurance.
  
  

Choosing Policy Limits

• Before you purchase an insurance policy, you should carefully assess your specific policy limit needs. For example, a homeowner's policy should not have limits lower than the market or mortgage loan value of your home. However, the higher your policy limits, the higher your periodic premiums and deductibles.