What is an aggregate limit in liability insurance?

An aggregate limit in liability insurance refers to the maximum amount that an insurance policy will pay for all claims during a specific policy period, typically a year. This limit encompasses the total of all claims submitted by the insured, ensuring that the insurer's financial responsibility is clearly defined. When the aggregate limit is reached, the insured becomes responsible for any further claims that arise, as the insurer will not cover any additional expenses beyond that set threshold. This feature helps insurance companies manage their financial exposure while providing insight for policyholders into the coverage limitations they must consider when assessing potential risks.

The other options do not accurately define an aggregate limit: the total premium paid by a policyholder pertains to the cost of the insurance, not the coverage limits; the total number of claims allowed in a year is separate from the monetary cap; and the highest individual claim payment refers to the maximum amount payable for a single claim, which is distinct from the aggregate limit covering multiple claims.