Ace the 2026 RIBO Exam – Boost Your Insurance Broker Swagger!

The description of an insurer's liability in a contract is best captured by the fact that it is limited to the policy limit. This means that the insurer has a maximum amount they are obligated to pay under the terms outlined in the insurance policy. Each insurance policy will specify the coverage limits, which represent the insurer’s contractual obligation to provide indemnity for covered losses.

In contrast, the notion of unlimited liability for all damages fails to reflect the contractual nature of insurance, where limits are clearly established. Similarly, liability that is based solely on a verbal agreement does not hold up in practice, as insurance contracts are required to be in writing and adhere to defined terms. Lastly, making liability dependent on the reputation of the insurer undermines the objective nature of insurance contracts, which are governed by specific policy provisions rather than personal judgments about an insurer's standing.