Define "policy limit".

The correct definition of "policy limit" is that it represents the maximum amount an insurer will pay for a covered loss under a specific insurance policy. This limit is crucial because it determines the extent of financial protection provided to the policyholder in the event of a claim.

For instance, if a policy has a limit of $100,000, the insurer is obligated to pay up to that amount for eligible claims resulting from covered events, such as property damage or liability. Understanding the policy limit is essential for policyholders to ensure they have adequate coverage for their needs and to avoid potential out-of-pocket expenses that exceed the limit in the case of a severe loss.

The other options relate to different aspects of insurance but do not define "policy limit" accurately. For example, the total premiums collected over the policy term refers to the cost of maintaining the policy rather than the maximum payout. The number of claims one can make annually does not pertain to the amount covered, and minimum coverage required by law relates to legal requirements for insurance rather than the specific limit of a policy.