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

The term "aggregate limit" in an insurance policy refers to the maximum amount an insurer will pay over a specified period for multiple claims. This limit is crucial for both insurers and policyholders, as it caps the insurer's total liability for all claims arising from incidents that occur during the policy period. For example, if a policy has an aggregate limit of $1 million, the insurer will cover claims up to that amount across all claims made throughout the policy period, whether they occur from multiple incidents or from a single type of loss.

Understanding this concept is important for policyholders as it helps them anticipate the maximum benefits they can receive from their policy. It also emphasizes the importance of reviewing the aggregate limit when selecting an insurance policy, as exceeding this limit could leave the policyholder with uncovered losses. The notion of an aggregate limit allows insurers to manage their risk more effectively while providing a structured approach for coverage over multiple claims.