Which of the following best describes 'policy limits'?

Policy limits refer to the maximum amount an insurance company is obligated to pay for a covered loss under a particular insurance policy. This concept is crucial as it delineates the boundaries of financial protection that the insurer can provide to the insured. In the event of a claim, the insurer will only pay up to this specified limit, which means that any losses exceeding this amount will not be compensated by the insurer. Understanding policy limits is essential for policyholders to ensure they are adequately covered for potential risks without facing significant out-of-pocket expenses.

The other options do not accurately encapsulate the meaning of policy limits. The average market value of the insured property pertains to valuation rather than the limits set by insurance coverage. The minimum amount required to maintain coverage refers to premiums or deductibles rather than limits on payout. Lastly, the range of expenses covered under the policy suggests a variety of covered costs rather than a cap on the maximum amount payable, which is what policy limits specifically refer to.