What is an aggregate limit in an insurance policy?

An aggregate limit in an insurance policy refers to the maximum amount that an insurer will pay for all covered losses during a specified policy period, typically a year. This limit encompasses multiple claims made under the policy but does not apply to any single claim; rather, it caps the insurer’s total liability across all claims. It is particularly important for policies that cover risks prone to multiple incidents, such as general liability insurance, where a single policy can be subject to numerous claims over its term.

This aggregate limit helps both the insurer and the policyholder manage risk and expectations regarding total payout potential. It ensures that the insurance company does not exceed a specified financial threshold due to a high number of claims within the coverage period, thereby allowing for a sustainable business model.