What is a common limitation of liability insurance policies?

Liability insurance policies typically include specific terms and conditions that can limit the insurer's obligations regarding payouts. One of the most common limitations found in these policies is the imposition of caps or limits on the amount that can be paid out for different types of claims. This means that while a policy may cover certain liabilities, there is often a maximum threshold for compensation.

For example, in a general liability insurance policy, the insurer may set a limit on the liability per occurrence and an annual aggregate limit. This is particularly relevant for commercial policies, where claims can vary widely in severity and impact. By having these caps, insurers can manage their risk exposure and ensure that they can fulfill their claims obligations without risking insolvency.

In contrast, other options presented imply broader coverage or conditions that do not accurately reflect the typical structure of liability insurance policies. Hence, recognizing the distinction of capped payouts highlights a vital aspect of how liability insurance operates, ensuring that insured parties are aware of the potential limits on their protection.