What is an aggregate limit in an insurance policy?

An aggregate limit in an insurance policy refers to the overall maximum payout that the insurer will provide for all claims during a specified policy term, usually a year. This means that regardless of the number or size of claims filed, the insurer will not pay out more than this set limit. For example, if a policy has an aggregate limit of $1 million, once the total of all claims reaches this amount, no further claims will be paid during that policy period.

This concept is crucial in understanding how insurance coverage works, especially in liability policies where multiple claims might occur from various incidents. Recognizing the aggregate limit allows policyholders to assess their risk exposure and understand the maximum financial protection available under their insurance during the designated time frame. In contrast, the other options pertain to different aspects of insurance coverage and do not accurately define what an aggregate limit is.