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What are Liability Limits?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 December 2016
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    2003-2016
    Conjecture Corporation
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Also known as limits of liability, liability limits are commonly included in the terms and conditions associated with the purchase and delivery of different types of goods and services. The limits define the amount of responsibility that the seller will assume in the event that the buyer encounters some type of problem with the good or service purchased. When properly constructed, liability limits provide protection for both the buyer and the seller.

One of the most common examples of the proper construction of liability limits is with insurance coverage. Provisions that are found with automobile liability limits help to define how much the insurance provider will pay in terms of liability coverage should the policyholder be in an accident. Some auto coverage defines specific amounts or limits on the amount of liability based on the nature of the covered incident. For example, one limit of liability may apply when extending payment to other parties in the accident, but a different amount of liability would be applicable for accidents that do not involve another vehicle.

The establishment of liability coverage limits is also common in the purchase of different types of goods. When purchasing an automobile, the seller and manufacturer will only assume so much liability for the proper function of the vehicle. Generally, the limit of seller and manufacture liability is defined in the terms of the purchase contract and reiterated in any warranty that is offered as part of the purchase.

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Liability limits also apply to the purchase of items such as home appliances, desktop and laptop computers, and just about any type of electrical device. Many of the purchase contracts will include specific sections that serve to establish the liability limits related to the transaction. It is not unusual for those limited to address such issues as the terms for replacement of a defective item, reimbursement for any repair costs incurred by the buyer, and the right of the customer to return the item for a full cash reimbursement.

With each of these situations, defining the scope of the liability limits helps to ensure that both the buyer and the seller understand their rights and responsibilities as they relate to the financial transaction. Buyers know what possible issues or situations are covered by the limits, while sellers are protected from having to deal with spurious claims made by buyers. Taking the time to read the purchase contract carefully, especially the sections that relate to the limits of liability, will help prevent any misunderstanding about the scope of responsibility that both parties are assuming.

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Discuss this Article

JaneAir
Post 3

A car warranty is the first thing I think of when I think of liability limits in terms of a product. Most people are familiar with warranties, and they definitely spell out exactly what is going to be the manufacturers responsibility and for how long.

I think it's definitely a good idea to see what kind of warranty you're getting before you purchase a car and shop around to a few different dealerships. I think a warranty is definitely something to take into consideration when you're making such a major purchase.

Azuza
Post 2

@indemnifyme - I think I'm going to take a look at my insurance liability limits on my policy. After reading your comment, I want to make sure I have enough!

Anyway, I think liability limits make a lot of sense in the context of buying and selling products. I also think it's a good thing that the liability limits are usually spelled out at the time of purchasing the goods or services. Although I know some people don't bother to read the terms and conditions when they buy something!

indemnifyme
Post 1

I used to work in the insurance industry, so I'm pretty familiar with the concept of liability insurance limits. Unfortunately, the general public isn't!

As the article said, liability limits are the amount an insurance company will pay if you get into an accident. Most states require a minimum amount of coverage, but it's wise to get more than the state minimum.

Most people think that if they insurance and they get into an accident, they have nothing to worry about. But that's not true. The insurance company will only pay up to your liability limits, and no more! So if your limit is $50,000, and you get into an accident and someone sues you for a million dollars and wins, you'll be responsible for the rest of that money.

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