What term refers to the maximum amount an insured may collect under the terms of the policy?

The term "Policy Limits" refers to the maximum amount an insured may collect under the terms of the policy. This limit is established by the insurer and denotes the cap on the financial protection provided for specific types of losses or damages covered within the policy. In other words, regardless of the actual loss incurred, the insurer will only pay out up to the policy limit.

This concept is crucial in insurance as it helps both the insurer and the insured understand the extent of coverage available. If the losses surpass the established policy limits, the insured would be responsible for any excess costs. Understanding policy limits helps individuals make informed decisions about their insurance needs, ensuring they select appropriate coverage amounts that align with potential risks they may face.

Additionally, the other terms have distinct meanings within insurance policies. A deductible represents the amount the insured must pay out of pocket before insurance kicks in. The coverage amount often refers to the value of the coverage provided for specific items or incidents, but it may not necessarily reflect the maximum payout. Insured value is more specific to the valuation of insured property rather than the cap on coverage itself.