What is meant by "aggregate limit" in an insurance policy?

The term "aggregate limit" in an insurance policy refers to the total amount that an insurer is willing to pay for all claims made within a specified period, such as a policy year. This limit applies to all claims combined, rather than to each individual claim.

Understanding the concept of the aggregate limit is crucial in risk management for both insurers and insured parties, as it helps set expectations on the maximum financial protection available under the policy. For instance, if a company has an aggregate limit of £1 million for a policy period, that is the maximum payout the insurer will provide, no matter how many claims are made within that time frame. Once the aggregate limit is reached, no further claims can be paid until the policy is renewed or adjusted.

This concept is particularly relevant in liability policies, where multiple claims can arise, and having an aggregate limit ensures that the insurer appropriately manages their risk exposure.