How do policy limits affect a claim settlement?

The reasoning behind the selection of B as the correct answer lies in the fundamental role that policy limits play in insurance claims. Policy limits represent the maximum amount an insurance company is obligated to pay under the terms of the policy. When a claim is filed, the insurer assesses the damages and determines whether they fall within the scope of the policy. If the claim exceeds the established limits, the insurer is not liable to pay more than that threshold. This directly influences the ultimate settlement amount, as it sets a ceiling on what the policyholder can expect to receive in compensation for their losses.

Understanding this is critical for adjusters when evaluating claims, as it helps establish expectations for both the insured and the insurer regarding the outcome of the settlement process. Adjusters must be aware of the policy limits to accurately assess the potential payout and effectively communicate this to the policyholder, thereby ensuring a fair and informed settlement process.