What is the significance of an aggregate limit in a CGL policy?

The significance of an aggregate limit in a Commercial General Liability (CGL) policy lies in its role as an overall cap on the insurer's total liability for covered claims during a policy period, typically set at one year. This means that while the policy may cover multiple claims, the insurer will not pay out more than the specified aggregate limit within that timeframe. This feature is crucial for both the insurer and the insured, as it helps to define the scope of coverage and manage the insurer's exposure to losses.

Having an aggregate limit allows businesses to understand the maximum financial protection available under the policy, ensuring they can plan for their risk management strategy effectively. It contrasts with limits that apply to individual claims, which can allow for higher payouts for each separate incident but still keep the overall liability within a manageable range for the insurer. Understanding the aggregate limit helps policyholders brace for potential costs, as exceeding this limit means they would be responsible for any additional claims beyond that amount.