Insurance coverage is not typically unlimited.
If the house burns down and it will cost $300,000 to rebuild, but the policy has a limit of $250,000, the insured could be short $50,000 on that rebuild.
In liability policies, the limits sometimes include defense costs (this is called a “wasting limit”). But, in my experience, most policies provide for defense “outside of the limits.” This means that the entire limit will remain available to pay the claimant no matter how much the insurer spends on attorneys.
A policy might have different limits for different types of claims. There may also be sublimits that apply instead of the general policy limit in certain situations. For example, many homeowners policies include a sublimit for sewer backup damage.
There may also be different per occurrence (or per claim) limits and “aggregate” limits. The aggregate limit is the maximum amount that the insurance company will pay under the given policy regardless of how many claims are made. But, fear not. The policy will reset at the end of the policy period, which brings us to the next lesson: The Policy Period.