What does the "aggregate limit" signify in liability insurance?

The definition of "aggregate limit" in liability insurance refers to the maximum amount that an insurer will pay for all covered claims during a specified policy term, typically a year. This limit is crucial because it acts as a cap on the insurer's exposure for multiple claims arising from a single policy. Once the aggregate limit is reached, the insurance company will not be liable to pay any further claims, regardless of their amount or nature, unless a new policy term begins or additional coverage is purchased.

Understanding this concept is vital for both insurers and insureds, as it influences how coverage is structured and how risks are assessed, ensuring that policyholders can adequately protect themselves against multiple claims while recognizing the limits of their coverage. This aspect is particularly important for businesses that might face numerous claims throughout a policy period, as it directly impacts their financial planning and risk management strategies.