Property Insurance FundamentalsQuestion 235 of 474
The limit of insurance shown on the declarations page of a property policy represents:
a.A sum guaranteed on any covered loss
b.The most payable, not a sum guaranteed
c.The value the insurer has placed on it
d.The least the insurer pays per claim
Explanation
A limit caps what the insurer can be required to pay; the payment itself is measured by the loss, the valuation basis and the deductible, and is usually far smaller. Treating the limit as a guaranteed sum is the misunderstanding behind demands for the whole limit after a small fire. The limit is also not the insurer's appraisal of the property, and it is a maximum rather than a minimum.
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Related questions on this topic
- Two policies share a loss pro rata: one carries an $80,000 limit, the other $120,000. A covered $50,000 loss occurs. The $80,000 policy pays:
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