What is the maximum amount an insurer will pay for an insured risk referred to as?

The term that defines the maximum amount an insurer will pay for an insured risk is known as the "Limit of Liability." This concept is essential in insurance policies as it outlines the insurer's responsibility and financial commitment toward covered losses.

Understanding the limit of liability helps policyholders grasp the extent of protection provided by their insurance. It specifies the highest amount the insurance company is obligated to pay under the policy for claims that fall within the scope of coverage. For instance, if a policy has a limit of liability of $100,000, this means that in the event of a claim, the insurer will only pay up to this amount regardless of the actual loss incurred above this limit.

In the context of risk management and financial planning, knowing the limit of liability is crucial for both the insurer and the insured, as it affects how much coverage one should obtain based on their individual needs and potential risks.