What does 'aggregate limit' refer to in an insurance policy?

The concept of 'aggregate limit' in an insurance policy refers to the maximum amount an insurer is obligated to pay for all claims that arise during a specified period, typically a policy year. This limit encompasses all claims covered under that policy during the defined timeframe, rather than being restricted to individual claims.

For instance, if an insurance policy has an aggregate limit of $1,000,000, the insurer will cover up to that total amount for all claims combined within the policy term. Once the aggregate limit is reached, the insurer has no further obligations for any additional claims until a new policy period begins, unless the policy is reinstated.

This is particularly significant in liability insurance, where multiple claims might arise from various incidents during the coverage period. It ensures that both the insurer and the insured are aware of the financial boundaries of coverage offered under the policy, thereby helping in risk management and financial planning. Understanding this limit is crucial for clients to effectively evaluate their insurance needs and ensure adequate protection against potential total losses.