What is an Aggregate Limit?
An aggregate limit is the total limit of coverage available under an insurance policy during a policy period, which often lasts for one year. It sets the maximum payout the insurer will make for multiple claims during that time. If the combined cost of claims reaches this limit, the policyholder will be responsible for any additional costs.
The aggregate limit ensures that insurers manage their risk exposure in personal and business insurance, such as homeowners or car insurance. For example, if a homeowner files multiple claims for property damage in a single year, the total payouts cannot exceed the policy’s aggregate limit. After reaching the limit, any further claims within the policy term would not be covered.
In the context of liability insurance, aggregate limits play a crucial role in managing risk for both insurers and policyholders. Businesses with a high risk of multiple claims in a year, such as construction companies or manufacturers, must carefully consider their aggregate limit to ensure they have sufficient coverage for potential claims throughout the policy period.
It’s important to understand the difference between an aggregate limit and a per-claim limit. While the aggregate limit is the total payout over the policy period, the per-claim limit applies to individual incidents.