In liability insurance, what does the term "aggregate limits" refer to?

In liability insurance, "aggregate limits" refer to the maximum amount an insurer will pay for all covered losses during a specified policy period, typically one year. This means that if a policy has an aggregate limit, it will cover multiple claims within that year up to the specified limit. Once that limit is reached, the insurer will not pay for any further claims that arise within the same policy period.

Aggregate limits are important because they provide a safeguard for both the insurer and the insured, ensuring that the insurer's liability is capped, while giving the insured a clear understanding of their maximum coverage available for multiple incidents during the period. For instance, if an insurance policy has an aggregate limit of $1 million, this amount is the total payout allowed for all claims made within the policy's year. If the insured makes multiple claims that together total more than $1 million, they will need to handle the difference out of pocket.

This concept is distinct from limits that apply to a single claim or limits set per accident, which only address coverage for individual incidents rather than collectively across a period.