Which term describes the maximum liability the insurer assumes on a policy?

The term that describes the maximum liability the insurer assumes on a policy is the policy limit. This refers to the highest amount that an insurer will pay for covered losses under a policy, effectively capping the insurance company's liability. The policy limit is crucial for both the insurer and the insured, as it clearly defines the scope of coverage and provides a framework for risk management.

Understanding the concept of the policy limit is essential in insurance because it ensures that both the insurer and the insured have a mutual agreement on the extent of coverage. It also helps in determining the premium, as higher coverage limits often result in higher costs.

The other options represent different concepts within insurance. The retention limit refers to the amount of risk an insurer retains before policy excess or reinsurance kicks in, while the deductible amount is the portion of a claim that the insured pays out of pocket before the insurer covers the remaining costs. Underwriting maximum refers to the maximum amount an insurer is willing to insure a particular risk, but it does not necessarily indicate the limit for a specific policy, as underwriting decisions can vary by situation.