What is meant by the term "aggregate limit" in an insurance context?

The term "aggregate limit" in the context of insurance refers to the maximum total amount that an insurer will pay for all claims during a specific policy period, regardless of the number of individual claims made. This limit is crucial for both insurers and policyholders, as it defines the financial exposure the insurer retains during that coverage period.

For instance, if a policy has an aggregate limit of $1 million, this means that over the course of that policy period, all claims combined cannot exceed $1 million. This aggregate limit is particularly common in liability policies, where multiple claims could arise from a single event or from various events throughout the year.

Understanding aggregate limits helps policyholders recognize the overall cap on their coverage, ensuring they are aware of the maximum assistance available from their insurer should multiple incidents or claims occur. This knowledge is vital for both managing risk and making informed decisions regarding additional coverage needs.