What does an Aggregate Limit in an insurance policy refer to?

An Aggregate Limit in an insurance policy specifically refers to a permanent limit that does not restore after a claim is paid. It represents the maximum amount that an insurer will pay for all covered losses during a specified policy period, typically one year. Once this limit is exhausted through claims, there are no further payouts available for additional losses under that policy period.

This concept is crucial for both insurers and policyholders to understand, as it helps in assessing the maximum risk exposure and the need for coverage limits. Since the aggregate limit does not restore, policyholders need to be aware of how much coverage they have left as claims are made throughout the policy term. This contrasts with other types of limits, such as per-incident limits, which are reset with each new claim.

The other options describe concepts that either do not characterize aggregate limits or misinterpret their function within insurance policies. Understanding these distinctions helps in evaluating insurance coverage effectively.