How does an "aggregate limit" differ from a "per occurrence limit"?

An aggregate limit represents the maximum amount that an insurer will pay for all covered claims during a specified policy period, typically a year. This limit encompasses all claims combined, ensuring that the insurer’s liability is capped over the entire policy term.

Conversely, a per occurrence limit defines the maximum payout that can be made for any single claim or event. This means that if a claim occurs, up to the stipulated per occurrence limit can be paid out, but once that claim is settled, the aggregate limit will still apply to limit total payouts across all the claims made during that policy period.

Understanding this distinction is crucial for both policyholders and insurers, as it affects how coverage operates in practice. If numerous claims are made within a policy period, the aggregate limit ensures that there is a finite threshold on the insurer’s total financial exposure, providing a degree of risk management for the insurer. This understanding helps businesses assess their insurance needs and manage potential liabilities appropriately.