Aggregate Limit

Posted in Finance, Accounting and Economics Terms, Total Reads: 545
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Definition: Aggregate Limit

It is a provision used in insurance contract that defines the maximum amount the insurer will pay to settle the claim in the policy period.


It is also referred to as annual aggregate limit, i.e the total amount the insurer will pay in a single year.


Example: Suppose the aggregate limit is $50 million. Yet you have claims worth $70 million that arose in the policy period ,then the insurance company will pay only up to $50 million and nothing more.


Also it takes into account the multiple claims in one period, yet any amount exceeding the aggregate limit will not be paid.


To select a (commercial general)policy two limits must be considered:

• Occurrence Limit and

• Aggregate Limit.


To appreciate the concept of aggregate limit, the concept of occurrence limit is also important.

Occurrence limit is the limit which pays for maximum one loss during the policy period. And the aggregate limit is the cap on the maximum amount that will be paid for n number of losses during the policy period

 

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