State Farm Insurance License Practice Exam

What does an Aggregate Limit in a liability policy specify?

1. A total limit for a single occurrence

2. A specified total amount for all losses during the policy period

3. An unlimited coverage for medical expenses

4. A per incident limit regardless of the occurrence

The correct answer is: A specified total amount for all losses during the policy period

An Aggregate Limit in a liability policy defines the maximum amount the insurer will pay for all covered losses during a specified policy period, typically a year. This means that, regardless of the number of claims made or occurrences that happen within that timeframe, the total payouts cannot exceed this aggregate limit. For instance, if an aggregate limit is set at $1 million, it means that if multiple claims are filed throughout the year, the total amount payable for all those claims combined cannot surpass that $1 million threshold. Once this limit is reached, no further claims will be paid until the policy is renewed or the aggregate limit resets. Other options do not accurately describe the aggregate limit. For example, a total limit for a single occurrence pertains to the per occurrence limit, which is distinct from the aggregate limit because it only applies to one incident rather than all incidents over a period. Unlimited coverage for medical expenses would imply there is no cap, which contradicts the purpose of limits in liability coverage. Lastly, a per incident limit does not reflect how aggregate limits function, as it applies to each individual occurrence without considering the total over the policy period.