What does "aggregate limit" refer to in insurance policies?

An aggregate limit in insurance policies refers to the maximum amount an insurer will pay for all claims made within a specific policy period. This limit is crucial for both the insurer and the insured, as it helps manage the insurer's risk and liability. Essentially, it caps the total payout for claims, ensuring that the insurance company does not face unlimited exposure due to multiple claims arising from a single policy period.

For instance, if a policy has an aggregate limit of $1 million, the insurer will cover claims totaling up to that amount throughout the duration of the policy, regardless of how many individual claims are submitted. Once that limit is reached, the insured may have to cover any additional costs out of pocket.

Understanding aggregate limits is vital for policyholders, as it helps them assess their coverage in relation to potential risks and ensures they have adequate protection for collective claims in a given period.