What is meant by the term 'aggregate limit' in insurance?

The term 'aggregate limit' refers specifically to the maximum amount an insurer agrees to pay for all covered losses that occur during a specified policy period. This means that regardless of the number of claims made or incidents that occur within that time frame, the insurer will only pay out up to this predetermined amount. Once the aggregate limit is reached, the insured party will not receive any further compensation for additional losses during that policy period.

This concept is crucial for both insurers and insureds, as it defines the extent of coverage and liability. It ensures that the insurer can manage its risk exposure while giving the insured an understanding of the maximum protection they can expect throughout the coverage term. In many types of liability insurance, such as general liability or professional liability, understanding the aggregate limit helps businesses plan for potential financial risks.