What does an aggregate limit represent in commercial insurance?

An aggregate limit in commercial insurance signifies the maximum amount that an insurer will pay for covered losses over a specific period, typically a policy year. This limit is crucial because it provides a cap on the total claims that can be made during that time frame, thus helping businesses to manage their risk exposure financially.

For instance, if a company has a commercial general liability policy with an aggregate limit of $1 million, any combination of claims during the policy year cannot exceed that amount. Once the aggregate limit is reached, the insurer is not obligated to pay for any further claims until the policy renews or is adjusted.

Understanding this concept is essential for businesses to ensure they have adequate coverage to protect against multiple claims within a given period, rather than receiving individual claim limits which could lead to significant financial exposure if numerous claims occur.