Washington State Insurance Practice Exam

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

1. The total premium the insured must pay

2. The maximum amount an insurer will pay for all claims during a policy period

3. The minimum payout for each individual claim

4. The amount available for a single event coverage

The correct answer is: The maximum amount an insurer will pay for all claims during a policy period

The term "aggregate limit" in an insurance policy refers to the maximum amount an insurer is obligated to pay for all claims made during a specified policy period, typically a year. This limit represents a cap on the total liability of the insurer for that policy term, ensuring that after reaching this limit, the insurer is no longer responsible for any additional claims made by the insured during that same period. This concept is particularly relevant in liability insurance policies, where multiple claims could arise from a single event or multiple incidents. It serves to protect the insurer from limitless exposure, providing predictability in terms of potential payouts. The aggregate limit works alongside individual claim limits, which may apply to specific incidents, allowing for a clear framework within which both the insurer and insured understand their potential liabilities and responsibilities.