Personal Auto Insurance Policy (PAP) Practice Test 2025 – Your All-in-One Resource for Exam Success!

The term "coverage limits" in a Personal Auto Policy refers to the maximum amount that the insurance company will pay for covered losses under the liability portion of the policy. These limits are set forth in the policy when it is issued and reflect the insurer’s obligation to compensate for damages awarded to a third party in the event of an accident that results in bodily injury or property damage.

Understanding coverage limits is crucial for policyholders as these limits dictate how much financial protection they have in case they are found liable for damages. For example, if a policy has limits of $100,000 for bodily injury liability per person and $300,000 total per accident, this means the insurer would pay up to $100,000 for each injured person and a total of $300,000 for all claims resulting from that accident.

The other options provide different contexts but do not accurately represent what coverage limits entail. The minimum required coverage by state law sets a baseline for insurance, but it doesn’t define the coverage limits of a specific policy. Similarly, the amount covered by the policy before deductibles is concerned with the deductible aspect, which is separate from coverage limits. Lastly, the average cost of premiums nationwide is about the cost of obtaining insurance rather than the specifics of what